Regulator confirms U-turn on maximum amount banks must refund fraud victims

The UK’s payments regulator has confirmed a last-minute U-turn on the maximum amount banks and fintechs will have to reimburse fraud victims under a new regime, after heavy industry lobbying and pressure from ministers.

After announcing a two-week consultation on 4 September, the Payment Systems Regulator (PSR) said on Wednesday that firms will now have to refund victims of authorised push payment (APP) fraud up to a limit of £85,000 per claim from 7 October.

This cap is down from £415,000, which triggered concerns from the industry and government that it could be unaffordable for smaller payment firms and encourage new types of scams.

“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,” the PSR said.

The widely expected U-turn marks a major victory for trade bodies that had lobbied for an £85,000 limit since a consultation last August, arguing it would cover roughly 99.7 per cent of fraud claims. APP fraud cost Britons £460m last year, according to UK Finance.

However, the PSR’s move has sparked anger from consumer groups.

‘Shamefully sidelined scam victims’

“The regulator has shamefully sidelined scam victims, despite the evidence showing that this decision could have a negative financial and psychological impact on them,” said Rocio Concha, director of policy and advocacy at Which?

“Instead, it caved into a lobbying campaign from some firms in the payments industry, some of which have already been warned by the FCA for their role in facilitating fraud.”

The PSR found in a review of high-value scams that of more than 250,000 cases, there were 18 instances of people being scammed for more than £415,000 in 2023, and 411 instances of more than £85,000.

Despite scaling back the rules, there remain significant concerns among fintech executives that by sticking to its October implementation date, the PSR will leave many firms unprepared to handle refund claims.

The sector has also cautioned that firms are still at risk of heavy losses from multiple claims submitted by organised fraudsters. Trade body The Payments Association has called for a £30,000 cap, which it claims would cover more than 95 per cent of cases.

Industry groups have further argued that the rules place no liability on technology firms for the roughly three-quarters of fraud that originates online.

Draft plans from Labour leaked before the general election show it calling the PSR’s rules “unfair and unsustainable” and arguing tech companies should be made liable for APP fraud reimbursement, although this is not an official policy position.

The PSR is due to publish a final policy statement explaining the reasoning behind its decision next week.