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UK regulators are set to dramatically scale back a new regime that would have forced banks and payment companies to reimburse fraud victims up to £415,000, after strong pressure from ministers and fintech firms.
The new maximum fraud payout is now expected to be set at just £85,000, according to people briefed on the plan, amid fears the higher level could have seen criminals exploit the compensation system and potentially put smaller fintech firms out of business.
Treasury insiders had called the planned new regime, set to come into effect on October 7, “a disaster waiting to happen” but consumer advocates insisted it would offer “vital protection for scam victims”.
After months of wrangling, the Payment Systems Regulator, the watchdog responsible, is said by people briefed on the plan to be looking at an £85,000 payout limit for fraud victims. Industry bodies such as UK Finance had pushed for the lower limit.
A consultation on the new limit is expected with an announcement set to be made as soon as Wednesday. The PSR said it would publish the results of its research into how much of recent payments fraud was on individual transactions worth more than £85,000. But it declined to comment on whether it would lower the proposed threshold for mandatory reimbursement by banks from £415,000.
In 2023, Britons lost £459.7mn to authorised push payment (APP) fraud, where someone is tricked into sending money from their bank account to a fraudster posing as a genuine payee.
Banks and payments companies currently reimburse, on a voluntary basis, customers for fraud at widely varying rates, with some refunding almost 100 per cent of cases, and others less than 10 per cent.
Tulip Siddiq, City minister, had expressed concern about the impact of the new system on the financial sector, while her Tory predecessor Bim Afolami said there were “significant problems” with the planned regime.
The industry had long argued that the £415,000 compensation limit was far too high and could encourage fraudsters to set up fake online deals with an accomplice, claiming maximum compensation from the payment provider and sharing the proceeds.
However, officials have pointed out that TSB has been offering a guarantee to reimburse any customers who are victims of payment fraud worth up to £1mn for the past five years.
In December, the PSR acknowledged that the compensation limit had “attracted a particularly high level of feedback” and said it might consult on revising the level ahead of October 7 if there was “convincing evidence to do so”.
A lower threshold of £85,000 would bring the maximum sum protected in line with the financial services compensation scheme, which protects depositors if a bank goes under.
However, some in the industry fear that even a reduced “per claim cap” would still leave financial services firms exposed to unlimited liabilities for multiple frauds carried out by organised crime or petty fraudsters.
The PSR said last month there was a wide divergence between UK banks in the amount of payments fraud they were refunding to customers.
Some big banks, such as Nationwide and TSB, were fully refunding more than 95 per cent of lost funds last year, while others such as digital bank Monzo, Danske Bank and AIB fully refunded customers in less than 10 per cent of reported cases of “authorised push payment fraud”.
Rocio Concha, Which? director of policy and advocacy, said: “It’s outrageous that the payments regulator is set to water down vital scam protections weeks before they were due to take effect and that this move follows months of lobbying from firms that refuse to take fraud seriously.
“Slashing the reimbursement limit risks exposing victims of the highest value scams to devastating financial and emotional harm and also significantly reduces crucial financial incentives for payments firms to put in place effective fraud security measures. This makes it more likely that scammers will continue to thrive on some payment platforms.”
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