Banks given extra time to ‘break the spell’ of scammers before sending payments

Payment service providers such as banks will be given more time to contact customers, police and others when they have reasonable grounds to suspect fraud before they send a payment, under draft legislation published on Tuesday.

It will give providers a further 72 hours to investigate payments, but only where there are reasonable grounds to suspect fraud or dishonesty and more time is needed to contact the customer or other parties such as law enforcement, the Government said.

The legislation will generally apply to authorised push payments (APPs).

The UK has seen an increase in authorised push payment fraud over the past few years, and in 2022 victims lost £485 million to such scams, the Government said.

APP scams happen when fraudsters trick victims into initiating and authorising a transaction, often by posing as legitimate organisations such as banks, businesses or the police.

Payment service providers have generally been required to process payments by the end of the following business day, giving only a limited timeline to investigate.

The Government intends to lay the legislation before Parliament so it comes into force by October 7 – when new consumer protections against APP fraud will come into force.

Economic Secretary to the Treasury Bim Afolami, said: “Fraudsters spin whole webs of lies and fabricate all sorts of things to convince people to send them money – this legislation will give banks, other payment service providers and law enforcement more time to get in touch with victims and break the fraudster’s spell before money is sent.

“The Government is absolutely committed to tackling fraud and recognises the impact of this devastating crime on victims – this legislation is another tool in our arsenal to fight fraud.”

In December 2023, the Payment Systems Regulator (PSR) outlined new consumer protections against APP fraud, which will come into force from October 7 this year.

At present, many banks have signed up to a voluntary reimbursement code, but there have been concerns that this has been applied inconsistently – meaning the chances of getting a refund may, to an extent, depend on who someone banks with.

The regulator said its new reimbursement requirement will prompt a step-change in fraud prevention and see the vast majority of money lost to APP frauds reimbursed to victims.

Its policy statement confirmed that the maximum level of reimbursement per claim will be set at £415,000. A claim excess of no more than £100 may be applied.

The £415,000 limit is in line with the maximum award the Financial Ombudsman Service (FOS) can make when considering complaints.

Alongside the new requirement to reimburse victims, the PSR previously outlined plans to increase the incentives on all payment firms to do more to detect and prevent APP fraud from happening in the first place, including splitting the cost of reimbursement 50/50 between “sending” and “receiving” firms.

Ben Donaldson, managing director of economic crime at UK Finance, which represents members of the banking and finance industry, said: “UK Finance has long called for firms to be allowed to delay payments in high-risk cases where fraud is suspected, and we are delighted to see draft legislation supporting this.

“This could allow payment service providers time to get in touch with customers and give them the advice and support they need to avoid being coerced by the criminals who want to steal their money. This could potentially limit the psychological harms that these awful crimes can cause and stop money getting into the hands of criminals.”

A spokesman for payments system operator Pay.UK said: “Our priority is providing tools to help the industry detect and prevent fraud before money leaves a victim’s account.

“Collaboration is vital and we continue to work with the wider industry and Government in developing these tools. Our name checking service, confirmation of payee, has had a significant impact in reducing fraud and misdirected payments.

“We are now piloting a new service for UK banks and building societies, that uses predictive intelligence to analyse money flows to proactively detect fraud and prevent crime before it occurs.

“We welcome the Government’s action to combat APP fraud. As we move forward, we remain committed to developing innovative solutions to stay ahead of fraudsters and protect customers in the ever-changing digital and payments landscape.”

Emma Lovell, chief executive of the Lending Standards Board, which oversees the voluntary reimbursement code, said: “The incoming Payment Systems Regulator framework introduces mandatory reimbursement for APP fraud victims from all payment service providers, but it is important that prevention and detection don’t get left behind. You can stop consumer harm from APP fraud by stopping these scams in the first place.

“The legislation proposed today is positive, and can be part of a bigger-picture approach on prevention and detection. A new APP fraud prevention standard is needed to ensure the industry has a consistent approach to stopping scams.”