New rules requiring banks to reimburse people who have been tricked into transferring money to a fraudster have been hailed as “a major step forward”.

Under the shake-up, banks must reimburse authorised push payment (APP) fraud victims, unless the customer has been grossly negligent.

A reimbursement limit of £85,000 has been applied under the rules, although banks can choose to go further than this and repay higher amounts.

The new protections apply when a transfer is made to and from a UK bank account. They cover transactions made from October 7 onwards and do not apply retrospectively.

Previously, many bank customers have relied on a voluntary code to get their money back. Concerns were raised that consumers faced a refund “lottery”.

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A fraud explosion in recent years has seen criminals posing as trusted institutions such as banks, companies or Government departments to persuade people to part with their cash, with scams becoming increasingly sophisticated.

According to figures from UK Finance, the total number of APP cases jumped by 12% annually last year to 232,429. Reported losses to this type of scam totalled £459.7 million.

Purchase scams accounted for around two-thirds (67%) of the total number of APP cases in 2023.

With a purchase scam, someone pays in advance for goods or services that are never received, often ordered online such as through an auction website or social media.

Three-quarters (76%) of APP fraud cases last year originated from online sources, according to UK Finance.

Its figures also show 62% or £287.3 million-worth of APP fraud losses was returned to victims in 2023, slightly up from 59% in 2022.

The new mandatory reimbursement limit was previously expected to be £415,000 under the changes, but the Payment Systems Regulator (PSR), which is overseeing the rules, confirmed in September that this would be reduced to £85,000.

The regulator said its decision to reduce the maximum limit was “carefully balanced” and more than 99% of APP claims by volume will still be covered by the revised cap.

But consumer group Which? argued that victims of high-value fraud, such as investment scams and house conveyancing, could face a lengthy reimbursement battle.

Some banks may decide to reimburse more than £85,000 on a case-by-case basis. If more than £85,000 is lost and not reimbursed, people can lodge a claim with the Financial Ombudsman Service (FOS), which has a compensation limit of £430,000.

Which? is also warning people to be vigilant – as fraudsters could use the changes to send out bogus information under the guise of banks.

Criminals often piggyback onto significant events to make frauds appear more plausible.

Lloyds Bank has previously estimated that more than £1 million could have been lost in the UK to fraudsters pretending to offer Taylor Swift concert tickets.

From today, this new scheme should ensure the vast majority of victims are reimbursed and treated in a fair and consistent way if they fall victim to this terrible crime

Rocio Concha, Which?

Rocio Concha, Which? director of policy and advocacy, described the new rules as a “major step forward”.

She said: “For too long, victims have been at the mercy of a reimbursement lottery depending on who they bank with. From today, this new scheme should ensure the vast majority of victims are reimbursed and treated in a fair and consistent way if they fall victim to this terrible crime.

“Which? has concerns about the regulator’s decision to weaken the scheme at the eleventh hour by slashing the maximum reimbursement limit, which reduces the incentive for banks and payment firms to take fraud seriously.

“We expect the regulator to closely monitor the protections that individual payment providers put in place to stop scams and be prepared to intervene and increase the threshold.”

Advances in technology and AI (artificial intelligence) have made fake communications harder to spot, including videos and voicemails. AI also strips out spelling mistakes and poor grammar – the traditional hallmarks of scams.

But AI is also being used to combat scams. Not-for-profit organisation Get Safe Online announced the launch of a new tool on Monday, powered by AI.

The Ask Silver tool enables smartphone users to upload a screenshot of suspect texts, emails or websites and it will instantly check on the communication and indicate whether it is a “red flag”.

Alex Somervell, founder of Ask Silver said: “In this digital age where scams are increasingly sophisticated and scammers are highly experienced, we must empower individuals with tools that enhance their vigilance and allow them to live, shop and buy without fear.”

Meanwhile, banks have been calling for a cross-sector and cross-border fightback against fraud.

A recent report by think-tank the Social Market Foundation (SMF) in partnership with Santander UK highlighted the global nature of fraud.

Our priority must be preventing these crimes in the first place

Ben Donaldson, UK Finance

Ben Donaldson, UK Finance managing director of economic crime said: “Fraud is an awful crime which can cause severe psychological harm to victims in addition to the financial loss. It also enables organised crime groups to profit, grow stronger and commit other crimes which harm society.”

He continued: “Reimbursement is important, but it does nothing to prevent or reduce the psychological harms to victims, nor does it prevent organised crime groups from stealing money.

“Our priority must be preventing these crimes in the first place. The financial services sector does far more than any other to protect the public from fraud. The vast majority of fraud originates on social media and via telecommunications networks, and this is where most of the social engineering and psychological harm takes place.

“We need the online services and telecommunications sectors to do even more with financial services and law enforcement to protect the public.”

In further moves to crack down on fraud, last week the Government proposed new laws to allow banks an additional 72 hours to delay suspect payments.

This could happen in cases where there are reasonable grounds to suspect a payment is fraudulent.

Currently, banks must either process or refuse a payment by the end of the next business day.

Some concerns have been raised that mandatory reimbursement may tempt some people into “complicit” fraud.

Asked by journalists about any unintended consequences of the new rules, Mr Donaldson said in May: “I think there is a good chance that we’ll see an increase in particular types of fraud. I would be surprised if we don’t see criminals exploiting this as an opportunity to carry out some complicit fraud.”

Someone found to be complicit in a scam will not receive a refund, as well as facing the prospect of police action.