Starting October 7th 2024, UK banks and payment service providers (PSPs) will be required to reimburse victims of Authorised Push Payment (APP) scams under new regulations set by the Payment Systems Regulator (PSR).
This legislation offers better protection to individuals, micro-businesses, and smaller charities who fall victim to scams, ensuring they are compensated for their losses in most circumstances.
🥷 Understanding APP Scams 🥷
Authorised Push Payment (APP) scams occur when a fraudster deceives someone into willingly authorising a payment to them. This often happens through impersonation, such as pretending to be a trusted entity like a bank, government official, or business partner. The victim is convinced to transfer money to the fraudster's account, believing they are making a legitimate payment. Once the payment is made, it is incredibly difficult to recover the funds, as the transaction was authorised by the victim, albeit under false pretences. APP scams have become increasingly sophisticated, targeting both individuals and businesses with well-crafted schemes.
🏦 What Does This Mean for Banks? 🏦
For banks and payment service providers (PSPs), this legislation represents a significant shift in responsibility and operational demands. They will need to ensure they can reimburse victims within five business days of a claim, though they can extend this period to up to 35 business days if additional information is required. The reimbursement obligation will involve splitting the cost 50-50 between the sending and receiving banks. The maximum reimbursement per claim is capped at £415,000, which aligns with the Financial Ombudsman Service's limit. Banks must also carefully assess claims to avoid unnecessary payouts, particularly in cases of gross negligence or first-party fraud.
🏴☠️ Enhancing Fraud Prevention Measures 🏴☠️
To mitigate the financial and operational impact of these new requirements, banks will need to significantly enhance their fraud prevention measures. This includes implementing more sophisticated fraud detection systems, providing clearer and more specific warnings to customers about potential scams, and pausing suspicious transactions when necessary. Banks will also need to work closely with law enforcement and other financial institutions to share data and insights that can help identify and prevent fraudulent activities. Additionally, banks may need to invest in customer education programs to raise awareness about APP scams and how to avoid them.
🚫 Avoiding Claims of Negligence 🚫
For individuals, small businesses, and charities to ensure they are protected under these new rules, they must take proactive steps to avoid being accused of negligence by their banks. This includes:
Heeding Warnings ⚠️
Pay close attention to any warnings provided by banks or payment providers during transactions. Ignoring these can be seen as gross negligence.
Prompt Reporting 📢
Information Sharing 🔁
Police Involvement 🚔
By adhering to these practices, individuals and businesses can better protect themselves from fraud while ensuring they meet the criteria for reimbursement under the new legislation.
The move marks the UK as a global leader in consumer protection against payment fraud, but the success of the policy will largely depend on its implementation and the ongoing cooperation between the financial sector and regulators.
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