Surge in ombudsman complaints deepens row over UK’s fraud refund scheme

Fraud-related complaints to the UK’s financial ombudsman have hit their highest level since at least early 2018, adding pressure on payment firms contesting a new mandatory reimbursement scheme.

Between April and June, consumers made 8,734 complaints about fraud and scams to the Financial Ombudsman Service (FOS), which resolves disputes between consumers and financial firms.

The figure is up from 6,094 cases during the same period last year and the highest quarterly reading since the FOS started accurately tracking the data in the first three months of the 2018/19 financial year.

The FOS pinned the increase on factors including consumers filing multiple claims if more than one firm is involved, a rise in people inadvertently using credit or debit cards to pay fraudsters, and more cases being brought by professional representatives.

Over half of the latest complaints were related to customer-approved online bank transfers, also known as authorised push payment (APP) fraud, which the banking trade body UK Finance said cost consumers £459.7m last year.

The surge in cases will feed into a row between banks, fintechs, and the Payment Systems Regulator (PSR) over incoming rules designed to provide far stronger protection to scam victims.

New measures are due to force banks and building societies to reimburse APP fraud victims up to a limit of £415,000 per case from 7 October unless firms prove the customer acted with “gross negligence.”

Trade bodies are urging the regulator to scale back its rules, including a lower reimbursement threshold, looser criteria for refusing a claim and a later deadline to give them more time to prepare.

A person familiar with the matter told City A.M. the PSR is set to lower its cap to £85,000 following strong pressure from the industry and government. The regulator declined to comment on its plan.

Some industry figures have warned that the scheme could be unaffordable for smaller firms, encourage new scams, and create friction for customers.

The FOS said on Wednesday that the PSR’s measures should speed up the reimbursement process for victims.

Rocio Concha, director of policy and advocacy at consumer group Which?, called the level of complaints against financial firms “very concerning”.

“Fraud victims are being badly let down by the current system of reimbursement, with wildly differing outcomes depending on who the victim banks with,” she told City A.M.

“These figures serve as a reminder that a new mandatory system of reimbursement, which will ensure the vast majority of victims get their money back, cannot come soon enough.”

Commenting on the figures, a PSR spokesperson said: “Our new reimbursement requirements will incentivise all payment firms to prevent these scams from happening in the first place, and make sure consumers are protected if they do fall victim.”

Some big banks have already signed a voluntary code that provides additional protection for consumers and guarantees reimbursement unless there are exceptional circumstances. Some lenders, like TSB, also operate their own fraud refund guarantees.

The FOS said that of the 4,752 APP scam cases it received over the three months, the code did not cover more than half (2,734).

It flagged a “significant rise” in complaints where people spot investment opportunities on social media and then inadvertently pay fraudsters using their debit or credit cards. The code or the PSR’s new rules do not cover these payments.

The FOS added that while banks had improved their fraud detection methods, the 44 per cent uphold rate for scam complaints remained higher than average of 37 per cent across all products and complaints issues.

Abby Thomas, the FOS’ chief executive, said it was “disappointing to see complaint levels rising to even higher levels”.

“In recent years, we have investigated thousands of cases, returning more than £150m to those who have fallen victim to these crimes,” she continued.

Ben Donaldson, managing director of economic crime at UK Finance, commented: “The financial services sector invests more in countering fraud than anyone else and is the only sector that reimburses victims.”

He added: “Our data shows that over 90 per cent of APP fraud starts online or over the phone, through social media, fake messages and calls. Despite this, these sectors bear no responsibility for reimbursing victims.”