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Banks must do more to improve response to scams, says watchdog Banks must do more to improve response to scams, says watchdog
(about 1 hour later)
Banks need to work harder to improve their responses to scams, a watchdog has said. Bank customers will be left vulnerable to fraudsters who trick them into transferring their money, the consumer body Which? has claimed, as it accused the payments regulator of letting banks off the hook.
The Payment Systems Regulator was responding to a “super complaint” from the consumer group Which? that said banks were not taking enough responsibility when customers lost their cash after being tricked into money transfers. The consumer body said the Payments Systems Regulator had not done enough to make banks responsible for reimbursing customers for losses from money transfers which have affected tens of thousands of people.
The regulator said the way in which banks work together in responding to reports of scams needed to improve. Which? was reacting to the work conducted by the PSR following a super complaint the the consumer group had made in September about the rise of the fraud over the phone, internet and on mobile devices.
It also found evidence to suggest some banks could do more to identify potentially fraudulent incoming payments, and to prevent accounts falling under the influence of scammers. The PSR said banks could do more to identify potentially fraudulent payments but that it did not intend to make banks’ liable for losses from what are known as authorised push payments (APP).
Hannah Nixon, PSR’s managing director, said: “In a short space of time we have built a clearer picture of the problems we are facing, and it is evident that this type of scam is a growing problem that needs to be tackled. Alex Neill, managing director of Which? home & legal services, said: “The regulator has finally acknowledged the considerable consumer harm caused by bank transfer scams. However, while recognising that the industry is not doing enough, it has failed to adequately address the issue of liability and has let the banks off the hook, giving them little incentive to do more to protect their customers.
“Tens of thousands of people have, combined, lost hundreds of millions of pounds to these scams, but the data we have seen so far is incomplete. We need a concerted and coordinated industry-wide approach to better protect consumers, and we need it to start today.” “The outcome for people is unfortunately that they will continue to be scammed out of millions of pounds. We need to see swift action and not see this kicked into the long grass in the second half of 2017,” said Neill.
Which? had raised concerns that, unlike many other payment methods, victims conned into sending money by bank transfer to a fraudster have no legal right to get their money back from their bank. Which? made the super complaint in September when it raised concerns that the sums consumers were being tricked into transferring were “often large and can be life-changing”. The consumer body had argued that placing more liability on banks for the losses from such scams would create efficient incentives for banks to develop systems to better manage risks.
The group’s research also found that six in 10 people did not realise they had no consumer protection in such a case. It described how the scam worked in two ways, either by fraudulent access to a consumer account or where the customer is deceived into authorising payment to the scammer’s account. The payment is almost instant and can can take place over the phone, via online banking, or in person.
But the regulator said there was not enough evidence to justify making banks liable for reimbursing victims of such scams. It added that, as more evidence comes to light, it will consider whether it is appropriate to propose changes to the obligations banks have for these types of scams. In response the PSR set out three possible ways to clamp down. These require banks to work on how they can share customer data to help money be reclaimed. There would also be a common approach to dealing with scams and collection of data to establish the extent of the fraud.
The watchdog has agreed a programme of work with Financial Fraud Action UK – a body that coordinates the fight against fraud – on which the banking industry should lead. Hannah Nixon, managing director of the new regulatory body, acknowledged the scamming was a growing problem. “Tens of thousands of people have, combined, lost hundreds of millions of pounds to these scams, but the data we have seen so far is incomplete. We need a concerted and coordinated industry-wide approach to better protect consumers, and we need it to start today,” she said.
It said the industry needed to develop, collect and publish “robust scam statistics” to address a lack of data on the scale of the problem and enable the issue to be monitored. The Financial Conduct Authority, which also looks after the interests of consumers, said it would work with firms to tackle concerns about the banks sending the payments and the banks which receive them.
The industry should also work to develop a common understanding of what information can be shared, and the barriers that exist to sharing information which could help scam victims recover their cash. The information commissioner’s office (ICO) will be involved in this. Christopher Woolard, executive director of strategy and competition, said: “Financial crime is a priority for the FCA and we will work to eliminate fraud by whatever means.”
The PSR also said a common approach to best practice standards needed to be developed, which both the victim’s bank and the bank that receives the money should follow when responding to reports of scams. While the PSR will not make banks liable for losses, it said it would keep monitoring the situation. “As work progresses and additional evidence comes to light, we will consider whether it is appropriate to propose changes to the obligations or incentives that banks have for these types of scams,” the PSR said.
The regulator will monitor this work and review the progress in the second half of 2017. “There is no silver bullet, but more can be done to prevent these scams in the first instance, and to respond faster when it does happen, in order to give consumers more support and help in recovering their money,” said Nixon.
A super complaint allows certain bodies to complain to regulators about features of the market significantly harming consumer interests. Which? is a designated consumer body under the Financial Services (Banking Reform) Act 2013.
It is the first super complaint received by the payments regulator, which was set up last year.
Which? made the complaint in September. It said UK consumers make more than 70m bank transfers a month, compared with just over 100m in a whole year a decade ago – but consumer protections had not kept up with changes in the way people paid.
By contrast, when people fell victim to fraudsters in other ways they had a better chance of getting their money back.
Which? said if a consumer authorised a payment to a scammer using a credit card they were likely to be able to recover lost funds from their bank under section 75 of the Consumer Credit Act.
And if they had been tricked into providing their banking security details, and the scammer had used those details to make an unauthorised transfer of funds, the consumer may retrieve lost funds from their bank under the Payment Services Regulations 2009.
In one case seen by Which?, fraudsters claiming to be from a bank convinced a customer that their account had been compromised and to transfer 17,500 savings to another account, set up in their name.
Within minutes, the customer realised they had been tricked and contacted their bank, to be told the money had gone. The victim was offered a 10p refund – the amount the fraudsters had left behind.