Banks not always considering vulnerability of scam victims, review finds

Banks are not always taking into account how vulnerable a customer might be to a scam when considering whether they should get their money back under a reimbursement code, a review has found.

The Lending Standards Board (LSB) looked at how banks have applied the voluntary code on bank transfer scams, which was launched in May 2019.

It found banks sometimes followed narrow processes and their judgments did not always consider the full circumstances.

The code reimburses victims of authorised push payment (APP) fraud who have been tricked into transferring money directly to a criminal, in situations where neither the bank nor their customer are to blame.

The LSB is responsible for overseeing firms which have signed up to the code to make sure it is delivering fair outcomes for consumers.

Before the code was introduced, many people had been losing large sums of money but their bank was not obliged to give them a refund as the customer had authorised the transfer.

Overall, the board found firms had taken positive steps to implement the requirements of the code, while showing a willingness to ensure a correct approach.

But it also found the identification of vulnerability and customers’ susceptibility to scams was not very well developed.

Questioning of customers who reported falling victim to a scam was often closed and did not allow for the clear identification of any vulnerability, it said.

In a small number of cases, evidence of vulnerability was available but was not always used as a consideration for reimbursement.

The board also said banks’ record keeping was an issue. Documentation of the rationale for the decision to decline reimbursement varied across firms and at some was non-existent.

Customers were often not informed of how a decision had been taken to deny reimbursement and were given no opportunity to address the grounds on which the firm was holding them liable for the success of the scam.

Judgments about reimbursement were not always made in the light of the full circumstances of the case, but were often driven by narrower process considerations, the board said.

The effectiveness of banks’ scam warnings also varied.

Emma Lovell, chief executive of the LSB, said the review shows areas of good practice and strong evidence that, when applied correctly, the code is working.

She continued: “Where improvements need to be made, we have issued recommendations to individual banks and these are currently being worked through by firms.

“Fundamentally, we want to see banks taking all of the required steps to protect consumers, while ensuring fair outcomes for those that fall victim to a scam. Banks have reaffirmed their commitment to this.”

Gareth Shaw, head of money at Which?, said: “The scams code is a vital measure that should be transforming the industry’s approach to fraud, but this report highlights serious concerns with how some banks are handling it, as the fundamental principle of reimbursing blameless people who have lost money through bank transfer scams is not being applied fairly or consistently.

“It’s clear that simply encouraging banks to do better is not effective, and highlights how a voluntary scheme is not enough to address the problem.

“The time has come for the safeguards consumers require to be built into the payments system. If the payment regulator is unable to make this happen, the Government must step in.”