UK regulator proposes slashing bank payout cap for fraud victims

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By Kirstin Ridley

LONDON (Reuters) -Banks and payment companies in Britain might only have to reimburse fraud victims by up to 85,000 pounds ($111,460) – far short of an expected 415,000 pound payout cap – under new proposals published by a British regulator on Wednesday.

The Payment Systems Regulator (PSR) said it was calling an eleventh-hour, 14-day consultation on the proposed lower cap after a review found only 18 instances in more than 250,000 involved people being scammed for more than 415,000 pounds – and 411 cases involving more than 85,000 pounds.

The PSR’s latest proposal for a reimbursement regime for authorised push payment (APP) fraud, due to come into effect on Oct. 7, comes against a backdrop of industry concerns that high payout caps could attract criminal gangs and upend small firms.

David Geale, the PSR’s managing director, said the new limit still covered the vast majority of authorised push payment scams and struck the right balance.

APP fraud, when criminals trick people into transferring money to them, accounted for around 460 million pounds of losses in 2023, a 5% fall from 2022. But the volume of scams rose by 12% to 232,429 cases last year, data from bank lobby group UK Finance shows.

Banks and payments companies currently reimburse APP fraud victims on a voluntary basis. Last year, TSB reimbursed 88% of customer losses, while Ireland’s AIB refunded only 9%, the PSR says.

A regime for more consistent reimbursement is designed to incentivise the industry to invest further in scam prevention, increasing customer protection and boosting consumer confidence.

Banks had called for a lower cap, warning about the risks of “complicit fraud”, when sophisticated criminal gangs pose as victims to claim compensation.

The PSR said in December the originally proposed maximum reimbursement level had attracted lively feedback, involved “difficult trade-offs” and had flagged the possibility of a new consultation to revisit the level ahead of October.

But Catherine Hammerson-Jones, a partner at law firm Rosenblatt, questioned whether the lower reimbursement cap would be enough to motivate banks to have better, more sophisticated, more robust fraud monitoring systems.

“My view is that the compensation should be kept high to protect victims and to keep the bank on its highest alert to avoid paying the compensation in the first place,” she said.

($1 = 0.7626 pounds)

(Reporting by Kirstin RidleyEditing by Tommy Reggiori Wilkes and Louise Heavens)