Stay informed with free updates
British regulators are poised to dramatically scale back a new regime that would have forced banks and payments companies to reimburse fraud victims up to £415,000, after strong pressure from ministers and fintech companies.
The new maximum fraud payout is now expected to be set at just £85,000, according to people briefed on the plan, amid fears that higher-level criminals could have exploited the compensation system and potentially put smaller fintech companies out of business .
Treasury insiders had called the planned new regime, due to come into effect on October 7, “a disaster waiting to happen”, but consumer advocates insisted it would provide “vital protection for scam victims”.
After months of wrangling, the Payment Systems Regulator, the watchdog responsible, is being told by people briefed on the scheme to look at an £85,000 payout limit for fraud victims. Industry organizations such as UK Finance had pushed for the lower limit.
A consultation on the new limit is expected, the announcement of which will take place as early as Wednesday. The PSR said it would publish the results of its investigation into how much recent payment fraud involved individual transactions worth more than £85,000. But it declined to comment on whether it would reduce the proposed threshold for mandatory repayment by banks from £415,000.
In 2023, the UK lost £459.7 million to authorized push payment fraud (APP), where someone is tricked into sending money from their bank account to a fraudster pretending to be a real payee.
Banks and payment companies currently voluntarily reimburse customers for fraud at widely varying rates, with some companies reimbursing nearly 100 percent of cases, and others less than 10 percent.
Tulip Siddiq, the city’s minister, had expressed concern about the impact of the new system on the financial sector, while her Tory predecessor Bim Afolami said there were “significant problems” with the planned regime.
The industry has long argued that the £415,000 compensation limit was far too high and could encourage fraudsters to enter into bogus online deals with an accomplice, claiming maximum compensation from the payment provider and sharing the proceeds.
However, officials have pointed out that TSB has offered a refund guarantee for customers who have fallen victim to payment fraud worth up to £1 million over the past five years.
In December, the PSR acknowledged that the compensation cap had received “a particularly high level of feedback” and said it would consult on a review of the level before October 7 if there was “compelling evidence to do so”.
A lower threshold of £85,000 would bring the maximum amount protected in line with the Financial Services Compensation Scheme, which protects savers if a bank fails.
However, some in the industry fear that even a reduced ‘per claim cap’ would still expose financial services firms to unlimited liability for multiple frauds committed by organized crime or small-time fraudsters.
The PSR said last month that there was a big difference between UK banks in the amount of payment fraud they refund to customers.
Some major banks, such as Nationwide and TSB, fully refunded more than 95 percent of lost money last year, while others, such as digital bank Monzo, Danske Bank and AIB, fully refunded customers in less than 10 percent of reported cases of “authorized push payment fraud”.
Rocio Concha, which one? director of policy and advocacy, said: “It is outrageous that the payments regulator would want to weaken vital protections against fraud weeks before they were due to come into effect, and that this move follows months of lobbying by companies refusing to commit fraud to take seriously.
“Lowering the compensation cap risks exposing victims of top value scams to devastating financial and emotional harm and also significantly reduces the crucial financial incentives for payment companies to implement effective fraud protection measures. This makes it more likely that scammers will continue to flourish on some payment platforms.”