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City businesses have called for more changes to the UK regime to require banks to reimburse payments fraud victims, after regulators angered consumer groups by cutting the compensation limit to £85,000.
The payments regulator’s U-turn adds to signals that the new Labor government is encouraging financial watchdogs to weaken rules designed to protect consumers and investors in a bid to boost the city and create a stronger stimulate economic growth.
In a decision first reported by the Financial Times, the Payment Systems Regulator said on Wednesday it was cutting the cap on fraud payouts by banks from £415,000 after finding that a floor of £85,000 would cover almost all cases.
Consumer group Which one? called the decision “outrageous” and said it meant victims of high-end scams such as investment fraud or home purchase fraud would “have their lives destroyed by this screeching turnaround.”
The eleventh-hour move, after heavy lobbying from fintech companies and pressure from government officials, came just weeks before the rules were due to come into effect on October 7. The regulator stuck to this date and said it would only consult on the changes for two weeks. .
“Victims of fraud will understandably be concerned about this last-minute change, which reduces the maximum compensation amount,” said Liberal Democrat MP and Treasury spokesperson Sarah Olney.
“We need to see more details behind this decision to shed light on whether the right balance has been struck between what the financial sector can afford and what is good for victims,” Olney said, adding that it is “high time” was for social media groups to do this. do more to prevent fraud.
Consumers who are tricked into making a payment to fraudsters via online or telephone scams are currently not legally entitled to any compensation. Most banks voluntarily reimburse losses in such cases, but this varies from almost 100 percent of cases being reimbursed with some lenders to as little as 10 percent with others.
Britons lost £459.7 million to such “authorized push payment” (APP) cases last year, down 5 percent from 2022, while the number of such cases rose by 12 percent. The previous Tory government tasked the regulator with drawing up plans to impose a regime of consistent fraud reimbursement.
The PSR said in its first consultation last year that a lower limit on fraud refunds of £30,000 or £85,000 would “exclude a significant number of victims” and cause “significant harm to those victims defrauded above that amount ”.
However, on Wednesday said the supervisor New research has found that a lower threshold of £85,000 would still cover more than 99 percent of authorized payment fraud cases when measured by volume – even if it excluded 10 percent of claims by value.
The review of claims since December found that only 411 of more than 250,000 cases involved defrauding people of more than £85,000 and that “almost all high-value scams consist of multiple smaller transactions”, making a higher limit less effective.
Financial groups welcomed the changes but urged authorities to go further, for example by holding social media companies accountable for fraud that often originates in their services or by tightening the right to refunds.
Ben Donaldson, director of economic crime at industry group UK Finance, said other sectors should join efforts to tackle 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 more than 90 percent of APP fraud starts online or over the phone, through social media, fake fraud. messages and calls,” he said.
Labor drew up plans ahead of the UK general election in July to hold tech companies liable to compensate victims of online fraud, but people in the industry said they had not been informed about this since the party came into government and that this was not included in the king’s speech. .
Riccardo Tordera-Ricchi, head of policy and government regulation at the Payments Association, said it would push for an even lower limit of £30,000 on fraud refunds. “The average scam is £12,000 for businesses and less than £2,000 for individuals,” he said. “For the remaining 5 percent, a police report should be required before proceeding.”
After the regulator proposed a £415,000 cap on mandatory refunds of 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 increase if the new rules encouraged criminals to exploit the system or increased consumer complacency.
Tulip Siddiq, Minister of Municipalities, 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 abruptly resigned as head of the PSR in May.