British Payments Sector Protests Fraud Reimbursement Rules

PSR. Payment Systems Regulator

The U.K. payments sector is protesting the government’s plan to have companies reimburse fraud victims.

Dozens of members of the Payments Association have written to the British economic secretary to the Treasury, Bim Afolami, to push back against the rules, Bloomberg News reported, citing a draft of the letter set to be sent Wednesday (May 15).

In it, the firms say that the maximum refund of £415,000 ($520,760) is “simply not proportionate” and could hurt smaller FinTechs.

Instead, they argue that the refunds should be capped at £30,000, a number closer to the average loss, and also caution the refund systems might not be ready in time.

The British treasury’s Payment Systems Regulator (PSR) is implementing this change — set to go into effect in October — to combat a surge in authorized push payment (APP) fraud.

APP fraud involves a customer instructing their bank to transfer money to another account, often for what they believe to be a legitimate purpose such as paying bills or making purchases. However, the payment is part of a scam, and the person on the other end of the transaction is a criminal, typically part of an organized crime group or “scam factory.”

However, that doesn’t matter. Once the transfer has been authorized, it is irrevocable. Scammers walk away with the money, leaving the victim empty handed.

In the past, the victims of APP fraud — the banking customers — have been liable for any losses incurred by the scams, unless their accounts have been hacked or account information has been compromised.

As PYMNTS wrote in March, with the U.K.’s changes set to go into effect, there is an urgent need for financial institutions to invest in more effective anti-fraud measures.

“Admittedly, the U.K.’s policies put banks and payment firms in a tough spot,” that report said.

“The new liability placed on them incentivizes them to take measures to minimize the occurrence of such fraud, and to protect themselves from potential losses, banks might opt to revoke or restrict the option for consumers to make authorized push payments — inconveniencing their customers and restricting their ability to make payments at the same speed as their peers in other countries.”

Beyond that, Riccardo Tordera-Ricchi, head of policy and government relations at the Payments Association, told Bloomberg that the new rules could hinder smaller FinTechs’ ability to compete with larger banks.

“We don’t want victims to fall for fraud, but the measures put in place have gone out of control,” Tordera-Ricchi said. “We can’t continue to say we’re a global center for FinTech if we are dropping the FinTech center.”

The PSR has said banks can challenge victims’ claims if the consumer did not take sufficient care when making a transaction, but noted they face a “very high bar” in showing that the consumer acted with gross negligence.

“The action we’re taking significantly increases the level of protection for people and puts the U.K. at the forefront of APP fraud protections globally,” Chris Hemsley, managing director at the PSR, said last year. “Our approach incentivizes banks and other payment firms to prevent APP fraud from happening in the first place while ensuring victims are protected in a consistent way.”