Banks are failing to explain why fraud victims have not been refunded

Britain’s banks are relying on generic warnings, making decisions not based on evidence and not properly explaining why scam victims should not be refunded, a damning review of an anti-fraud code said.

A code designed to better protect consumers from bank transfer scams came into force last May and said was supposed to make it easier for them to get their money back if the scam was not their fault.

It was signed by the UK’s biggest banks, but recent figures revealed 41 per cent of losses assessed under it were handed back to victims, despite saying they ‘should’ be reimbursed.

At some banks, just one per cent of victims are fully reimbursed

A review of fraud cases by the Financial Ombudsman Service raises numerous concerns about the way banks and payment providers treat fraud victims.

It said firms were ‘inappropriately declining reimbursement’, ‘applying generic reasoning to individual complaints’, ‘making decisions based on assertion, rather than on the evidence’, ‘not taking into account the full circumstances of the scam’, and ‘not giving reasons for their conclusions’.

It added even victims who managed to claw some money back were being offered 50 per cent of their losses ‘on the basis that the consumer did not have a reasonable basis for believing the transaction or recipient was genuine’, ‘when 100 per cent would be appropriate’.

It said partial refunds may deter consumers from pursuing valid complaints and concluded: ‘Some firms are not providing a clear rational for their decision to not reimburse under the CRM code.

‘The impact of this approach to warnings and “reasonable basis for believing” is that the presumption in favour of reimbursement is in practice, in many of the cases we have seen, effectively reversed.’

Some £101.1million in authorised push payment scam losses were assessed under the code in the second half of last year, with 41 per cent of that money handed back, according to the latest fraud figures from UK Finance.

Victims who lost ‘life-changing sums’ of £10,000 or more were likelier to get their money back under the new code, but the reimbursement rate of this £54.2million lost was still only 42 per cent.

The FOS review of banks’ handling of the code was published in the minutes of a conference call between 24 banks, regulators and trade bodies which took place on 30 March.

Chris Hemsley, the managing director of the UK Payment Systems Regulator, said the amount handed back to victims was ‘well below the levels that I was expecting. 

‘After all, the code presumes that customers should be reimbursed unless there are clear grounds for holding them liable.’

Three-quarters of scams assessed under the code involved sums of less than £1,000, with less than a third of the £11.3million lost handed back to victims.

The code signatories are Barclays, the Co-op Bank, HSBC, Lloyds, NatWest, Nationwide Building Society, Metro Bank, Santander and Starling.

One bank fully refunded just 1% of victims… 

The call minutes also revealed UK banks appeared to be interpreting the code very differently. 

While the banks were anonymised, figures revealed one UK bank fully refunded 59 per cent of authorised push payment scam victims, while two others refunded just 1 and 3 per cent.

One bank partially refunded victims in 93 per cent of cases, but only gave them all their money back in 6 per cent.

Hemsley added: ‘We can see that the levels of reimbursement are extremely varied across code banks. 

‘It also shows that in a significant number of cases, code banks are either not reimbursing, or where they are, the award is partial, meaning that a large number of victims are left out of pocket.

‘These issues need to be addressed as soon as possible to make sure the code is delivering the right outcomes for consumers. Looking across all the evidence, there is some cause for concern that outcomes are not where we all want them to be.’

The Lending Standard Board, which operates the code, is currently carrying out its own review. It previously told This is Money in March: ‘The introduction of the Contingent Reimbursement Model Code in May 2019 marked a major milestone in delivering increased protection for consumers.

‘The Lending Standards Board took over governance of the code in July 2019 and has since continued to engage with signatory firms to ensure that the requirements are adhered to.

‘The LSB is also actively working with firms to increase the number of signatories to the code.

‘We have recently conducted a themed review of how signatory firms are applying one element of the code – a customer’s reasonable basis for belief that the relevant transaction was legitimate.

‘Individual reports have been issued and where relevant, highlight improvements necessary to meet the obligations of the code. 

‘In addition, we convened a workshop in January with a number of firms to highlight our initial findings. Our summary report is due to be published shortly, followed by a full review of the code later this year.’

This is Money has contacted trade body UK Finance – which represents banks – for comment and at the time of publication it hasn’t responded.