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UK banks which signed up to a scheme to compensate fraud victims have seen complaints decline, according to a report which could offer the industry an opportunity to alter regulators’ plans for mandatory compensation.
The 10 banks, which include the larger high street names, saw a 10 per cent dip in complaints to regulators last year, down to 5,202, according to the Financial Ombudsman Service. By contrast, other lenders that failed to join the compensation scheme saw a 38 per cent rise in complaints, driving a 17 per cent increase overall.
The payments industry seized on the data as evidence that there is a need for a “degree of flexibility” in proposals from the Payment Systems Regulator, which will from next year require all providers to compensate victims of authorised push payment fraud (APP).
APP fraud — where scammers make false representations in order to encourage victims to transfer funds to them — accounted for some £485mn in losses last year, according to trade body UK Finance.
“We need to take a systemic approach to this rather than provide the solutions that the PSR has provided,” said Tony Craddock, director of the Payment Association, a trade body. “It could actually create a moral hazard in which consumers will become less vigilant, knowing there’s a money-back guarantee.”
The ombudsman reported on Wednesday that more than half of all APP complaints received from customers last year were about banks that did not subscribe to the contingent reimbursement model. Introduced in 2019, the voluntary code requires firms to monitor payment authorisations, delay suspicious payments and compensate savers who are “not to blame” for losses.
However, senior MPs have maintained that mandatory measures are necessary to protect consumers.
“There must be no further feet dragging,” said Harriett Baldwin, Conservative MP and chair of the House of Commons Treasury select committee. “Mandatory fraud reimbursement must be introduced without delay to protect consumers from pernicious criminal scammers.”
Chris Hemsley, managing director of the Payment Systems Regulator, told MPs on Tuesday that the PSR’s initial proposals, including an excess to be paid by victims to providers, were too complicated and still needed to be streamlined.
When challenged by MPs on the current maximum limit planned for compensation, he argued a cap of £415,000 would cover most instances of APP fraud.
He added: “Without that maximum limit, the effect on payment firms is that they were at risk of quite an uncapped liability. Of course they could manage this risk by managing fraud risk better.”
