Fraud compensation plans slashed: what you need to know and how to stay protected

We all try to stay on top of our finances, but fraud can hit when you least expect it.

Whether it’s a dodgy email or a convincing phone call, scammers are becoming more clever, and it’s getting harder to know who to trust.

Now, just when we thought there was more protection for fraud victims, the rules around compensation are being scaled back – leaving many people frustrated and worried.

Let’s break down what’s happening with these changes, what it means for you, and how you can protect yourself from getting caught out by fraudsters.

It’s important to know your rights and stay one step ahead of the scammers!

What is APP fraud?

Authorised push payment fraud happens when a scammer tricks you into sending money by pretending to be a legitimate business or person.

For example, they may pose as a lawyer, tradesperson, or even sell fake products online. Once the money is transferred, it’s often hard to recover.

Right now, banks are not required to refund these losses, although some may do so voluntarily.

However, new rules are on the horizon, making it mandatory for banks to refund fraud victims – but not quite as generously as originally planned.

The compensation cut: what’s changed?

The Payment Services Regulator initially proposed that victims could be refunded up to £415,000. However, following pressure from financial firms, that cap has been reduced to £85,000.

Consumer groups, including Which?, have criticised the move, calling it “outrageous” and accusing firms of not taking fraud seriously.

The PSR argues that the lower cap will still cover more than 99% of fraud cases, and only a small number of victims will lose out.

In fact, out of over 250,000 fraud cases in 2023, just 18 involved amounts over £415,000, and 411 cases involved losses of more than £85,000.

The new compensation rules are set to come into effect on 7 October 2024, and banks will be required to split refunds 50-50 between the sending and receiving institutions.

However, the new cap still leaves some people exposed, especially those caught up in large-scale frauds.

Growing concerns about rising fraud

The reduction in compensation comes at a time when fraud and scams are reaching record levels.

The Financial Ombudsman Service (FOS) has reported its highest number of complaints in six years, with 8,734 fraud and scam disputes lodged between April and June this year.

Nearly half of those complaints were upheld in favour of consumers, showing just how widespread the problem is.

Scammers are becoming increasingly sophisticated, targeting people who are busy and distracted, especially after the summer holidays, when they’re organising their schedules and finances.

UK Finance’s Take Five to Stop Fraud campaign encourages people to pause and think before sharing personal details or transferring money to avoid being tricked.

Investment scams: a growing threat

Investment scams are also on the rise, with fraudsters often using social media to lure in victims.

They present supposed “investment opportunities” that seem too good to be true – and unfortunately, they usually are.

If you’re scammed through a bank transfer, you might be able to claim a refund, but if you pay via other methods, like a credit or debit card, things get trickier.

Banks and other financial institutions are dealing with more claims as fraudsters find new ways to exploit the system.

What can you do to protect yourself?

Fraud is a distressing experience, not just financially but emotionally as well. Abby Thomas, CEO of the FOS, highlights that victims often feel embarrassed to come forward.

However, fraud can happen to anyone, and there’s no shame in seeking help.

Here are some steps to help protect yourself from fraud:

• Pause before you pay: Don’t rush to send money, especially if you’re feeling pressured.
• Verify the request: Always double-check with the company or person directly if you receive unexpected requests for payment.
• Look for red flags: Be cautious of deals that seem too good to be true or urgent messages asking for money or personal information.
• Report fraud: If you think you’ve been a victim of fraud, contact your bank immediately. They may be able to freeze the transaction or refund your money.

Your rights as a fraud victim

If you fall victim to a scam, the Financial Conduct Authority (FCA) regulates financial services in the UK, and you have the right to complain about any regulated firm to the Financial Ombudsman Service.

The FOS can settle disputes and order firms to pay compensation.

Most high street banks have signed up to the Contingent Reimbursement Model (CRM), a voluntary code designed to protect customers from APP fraud.

However, from 7 October 2024, the Mandatory Reimbursement Requirement will replace the CRM, covering most UK money transfers, though international transfers and cryptocurrency transactions will be excluded.

While this new mandatory rule ensures that victims are compensated for most scams, the reduced refund cap is something to keep in mind.

Staying vigilant and aware of the risks is key to avoiding financial loss.

Final thoughts

Fraud is on the rise, and while the new regulations promise to protect the majority of scam victims, the reduced cap means that some may lose out.

By staying cautious and informed, you can protect yourself from falling prey to scammers.

If you ever feel unsure, it’s always best to pause, verify, and report any suspicious activity to your bank or a trusted authority.