Payments scams 'a growing problem that needs to be tackled', banks warned

Banks need to work harder to improve their responses to scams, a watchdog has said.

The Payment Systems Regulator (PSR) was responding to a "super complaint" from consumer group Which?, that said banks are not shouldering enough responsibility when customers lose their cash after being tricked into transferring money by scams.

The PSR said the way in which banks currently work together in responding to reports of scams needs to improve.

It also found evidence to suggest some banks could do more to identify potentially fraudulent incoming payments, and to prevent accounts falling under the influence of scammers.

PSR managing director Hannah Nixon said: "In a short space of time we have built a clearer picture of the problems we are facing, and it is evident that this type of scam is a growing problem that needs to be tackled.

"Tens of thousands of people have, combined, lost hundreds of millions of pounds to these scams, but the data we have seen so far is incomplete. We need a concerted and co-ordinated industry-wide approach to better protect consumers, and we need it to start today."

Which? had raised concerns that, unlike many other payment methods, victims conned into transferring money by bank transfer to a fraudster have no legal right to get their money back from their bank.

The consumer group's research had found six in 10 (60%) people did not realise they had no consumer protection from their bank if they were scammed into making a bank transfer.

But the PSR said there was not enough evidence to justify making banks liable for reimbursing victims of such scams. It added that, as more evidence comes to light, it will consider whether it is appropriate to propose changes to the obligations that banks have for these types of scams.

The PSR has agreed a programme of work with Financial Fraud Action UK (FFA UK) - a body that co-ordinates the fight against fraud - on which the banking industry should lead.

It said the industry needs to develop, collect and publish "robust scam statistics" to address a lack of data on the scale of the problem and enable the issue to be monitored over time.

The industry should also work to develop a common understanding of what information can be shared, and the barriers that exist to sharing information which could help scam victims to recover their cash. The Information Commissioner's Office (ICO) will be involved in this.

The PSR also said a common approach to best practice standards needs to be developed, which both the victim's bank and the bank that receives the money should follow when responding to reports of scams.

The PSR will monitor this work and review the progress made by the industry in the second half of 2017.

A super complaint allows certain bodies to complain to regulators about features of the market significantly harming consumer interests. Which? is a designated consumer body under the Financial Services (Banking Reform) Act 2013.

It is the first super complaint the PSR, which was set up in 2015, has received.

Which? made the complaint in September. It had said UK consumers make more than 70 million bank transfers a month, compared with just over 100 million in a whole year a decade ago - but consumer protections had not kept up with changes in the way people paid.

By contrast, when people fell victim to fraudsters in other ways they had a better chance of getting their money back.

Which? said if a consumer authorised a payment to a scammer using a credit card they were likely to be able to recover lost funds from their bank under Section 75 of the Consumer Credit Act.

And if they had been tricked into providing their banking security details, and the scammer had used those details to make an unauthorised transfer of funds, the consumer may retrieve lost funds from their bank under the Payment Services Regulations 2009 (PSRs).

In one case seen by the consumer group, fraudsters claiming to be from a bank convinced a customer that their account had been compromised and to transfer £17,500 savings to another account, set up in their name.

Within minutes, the customer realised they had been tricked and contacted their bank, to be told the money had gone. The victim was offered a 10p refund - the amount the fraudsters had left behind.

Ms Nixon said that while there is "no silver bullet", more can be done to prevent scams happening in the first place and to respond faster to help people get their money back.

She said: "As technology improves, we need to find ways of making it harder for fraudsters to commit these scams. We are committed to seeing the banking industry work together to take a firm and pro-active stance in protecting their customers from this type of fraud."