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New proposals to reimburse victims of fraud are “fundamentally flawed”, say MPs

6 February 2023

Proposals to hand scam reimbursement to a body sponsored by the banking industry are “fundamentally flawed”, the Treasury Committee says today.

In a new report, Scam reimbursement: pushing for a better solution, the cross-party Committee of MPs criticises the painfully slow implementation of mandatory reimbursement for fraud victims, and objects to new proposals by the regulator which would hand the refund process to an industry body.

Fraud is the most common crime in England and Wales, and one of the most reported in Scotland. Authorised push payment fraud, where a scammer tricks someone into sending them a payment, is widespread. At least 196,000 consumers lost £583 million to these scams in 2021.

The Payment Systems Regulator (PSR) proposes that banks and building societies will be required to fully reimburse victims of authorised push payment scams within two days of the fraud being reported where the loss is over £100.

However, rather than taking control of implementing mandatory reimbursement itself, the PSR is proposing handing responsibility to a separate body – Pay.UK – which is guaranteed by the financial services industry.

The Committee sees this as an inherent conflict of interest, as Pay.UK will be responsible for ensuring the very banks and building societies that are its own guarantors - some of which are fundamentally opposed to the plans - pay out large sums to reimburse consumers.

This creates an opportunity for the banking industry to slow down the implementation of the reimbursement plans, which have already been unacceptably delayed until 2024. The MPs state that mandatory reimbursement must be fully implemented by the end of this year.

The Committee also outlines that Pay.UK lacks effective tools to ensure the financial services industry is complying with the rules, as it has no regulatory or enforcement powers. The MPs call for the PSR to revise its plans and take back control of the reimbursement process.

Chair's committee

Treasury Committee Chair, Harriett Baldwin MP, said:

“Victims of fraud have been waiting far too long for a fair and functional scam reimbursement scheme. However, while these new proposals are a step in the right direction, the way the regulator plans to implement them is fundamentally flawed. Putting an industry body in charge of reimbursing scam victims is like asking a fox to guard the henhouse.

“The regulator needs to take back control of the reimbursement process, rather than leave it in the hands of an industry body which is inherently conflicted.”

The previous Treasury Committee called for reimbursement to be made mandatory in 2019. Last year, the Committee reiterated that call, recommending the Government act with urgency to introduce mandatory reimbursement.

Separately, the Treasury Sub-Committee on Financial Services Regulations today raises concerns about types of fraud which are not covered by the PSR’s proposals. In a letter to the Bank of England, the MPs question why high-value transactions made through CHAPS, such as house purchases, are not included. While these scams account for 0.2 per cent of all fraud, they amount to four per cent of fraud by value.

In a letter to the Financial Conduct Authority (FCA), the Sub-Committee asks whether transactions within the same bank will miss out on mandatory reimbursement protection. In a letter to the PSR, the MPs question why scams under £100 will not be refunded, and in correspondence with the Financial Ombudsman Service (FOS), the Sub-Committee asks whether the slow resolution of reimbursement disputes by the FOS could undermine the proposals.

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