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City companies have called for more changes to the UK’s planned regime for requiring banks to refund victims of payments fraud after regulators angered consumer groups by slashing the compensation limit to £85,000.
The U-turn by the payments regulator adds to signs that the new Labour government is encouraging financial watchdogs to dilute rules designed to protect consumers and investors in a bid to boost the City and fuel stronger economic growth.
In a decision first reported by the Financial Times, the Payment Systems Regulator said on Wednesday it was lowering the maximum for fraud payouts by banks from £415,000 after finding that a lower limit of £85,000 would cover almost all cases.
Consumer group Which? called the decision “outrageous”, saying it meant victims of high-value scams, such as investment scams or house purchase fraud, “stand to have their lives destroyed by this screeching U-turn”.
The eleventh-hour move, following heavy lobbying from fintech companies and pressure from government officials, came just weeks before the rules are due to start on October 7. The regulator stuck to this date, saying it would only consult on the changes for two weeks.
“Fraud victims will understandably be concerned about this last-minute change, which lowers the maximum compensation amount,” said Liberal Democrat MP and Treasury spokesperson Sarah Olney.
“We need to see more detail behind this decision to shed light into whether the right balance has been struck between what the financial sector can afford and what’s right for victims,” Olney said, adding it was “high time” for social media groups to do more to prevent fraud.
Consumers who are tricked into making a payment to fraudsters by an online or phone scam are currently not legally entitled to any compensation. Most banks voluntarily refund losses in such cases, but this varies from almost 100 per cent of cases being refunded at some lenders to just 10 per cent at others.
Britons lost £459.7mn to such “authorised push payment” (APP) cases last year, down 5 per cent from 2022, even as the number of such cases rose 12 per cent. The previous Tory government instructed the regulator to draw up plans to impose a regime of consistent fraud reimbursement.
The PSR said in its initial consultation last year that a lower limit on fraud repayments of £30,000 or £85,000 would “exclude a significant number of victims” and there would be “significant harm to those victims defrauded above that amount”.
However, on Wednesday the regulator said new research had found a lower threshold of £85,000 would still cover more than 99 per cent of authorised push payment fraud cases by volume — even if it would exclude 10 per cent claims by value.
Its review of claims since December found only 411 out of more than 250,000 cases involved people being scammed for more than £85,000 and “almost all high value scams are made up of multiple smaller transactions”, making a higher limit less effective.
Financial groups welcomed the changes but urged the authorities to go further, such as by holding social media companies responsible for fraud that often originates on their services or by tightening the eligibility for refunds.
Ben Donaldson, managing director of economic crime at industry group UK Finance, said other sectors should join efforts to clamp down on fraud. “The best way to protect people is to prevent fraud from happening in the first place and that requires work from other sectors too, as our data shows that over 90 per cent of APP fraud starts online or over the phone, through social media, fake messages and calls,” he said.
Labour drafted plans before the UK general election in July to make tech companies liable to reimburse victims of online fraud, but people in the industry said they had not been updated on this since the party entered into government and it was not included in the King’s Speech.
Riccardo Tordera-Ricchi, head of policy and government regulations at the Payments Association, said it would push for an even lower limit of £30,000 for fraud refunds. “The average scam is £12,000 for businesses and less than £2,000 for individuals,” he said. “For the remaining 5 per cent, a police report should be mandatory before it moves any further.”
After the regulator proposed a £415,000 limit on mandatory refunds on fraudulent payments late last year, Treasury insiders called the new regime “a disaster waiting to happen”. Financial lobby groups warned of the risk that fraudulent claims would surge if the new rules encouraged criminals to exploit the system or increased consumer complacency.
Tulip Siddiq, City minister, has expressed concern about the impact of the new system on the financial sector. Her Tory predecessor Bim Afolami also said there were “significant problems” with the planned regime shortly before Chris Hemsley quit abruptly as head of the PSR in May.