Scam victim payouts watered down from proposed £415,000 before new bank rules come into force

Banks must compensate fraud victims up to £85,000 within five days under a new reimbursement scheme, after the original £415,000 limit was watered down. 

Compensation payments for scam victims will be made mandatory from 7 October under rules set by the Payment Systems Regulator.

The new rules will see the maximum payout slashed from the £415,000 limit which was proposed in an earlier draft of the regulations. 

The Payment Systems Regulator said 99 per cent of claims would be covered by the £85,000 cap, with just 18 claims in 2023 having been for more than £415,000, and 411 instances above £85,000. 

At the moment banks refund scam victims on a voluntary basis, though many have chosen to sign up to the Contingent Reimbursement Model (CRM) code, meaning that customers will be reimbursed other than in exceptional circumstances.

Under the new system, once banks or payment companies have reimbursed the claimant, they will be able to claim half of the money back from the financial institution the scammer used to receive the funds.

The Payment Systems Regulator said the Bank of England would review the £85,000 limit within the next 12 months.

In a statement, the Payment Systems Regulator said: ‘This was a carefully balanced decision – which provides significant protection to fraud victims and strikes an appropriate balance having regard to the PSR’s innovation and competition objectives and making sure that payment systems work well for everyone.’

Fraud and scam complaints to the Financial Ombudsman Service reached their highest level for a three-month period between 1 April and 30 June this year.

There were 8,734 complaints made by consumers, up from 6,094 for the same period a year earlier.

More than half of the cases were related to customer-approved bank transfers, known as authorised push payment (APP) scams. These scams see fraudsters manipulate their victims into marking payments believing they are a legitimate business or Government body.

These scams often come in many forms, and could be as simple as a text message purporting to be from a victim’s bank.

In 2023, there were 232,429 cases of APP fraud, with victims losing a total of £459.7million, according to UK Finance.

Rocio Concha, Which? director of policy and advocacy, said: ‘This decision puts all of us at greater risk of being targeted by criminals because it reduces the incentives for banks and payments firms to take fraud prevention seriously.

‘The regulator has shamefully sidelined scam victims, despite the evidence showing that this decision could have a negative financial and psychological impact on them. Instead, it caved into a lobbying campaign from some firms in the payments industry.’