FCA consults on complaints rights of payment fraud victims

APP frauds take place where a victim is conned into authorising a transfer of money from their bank account into an account which they believe is controlled by a legitimate payee, but which is actually controlled by a fraudster. Because these payments are "authorised", victims do not currently have the same rights as they do in relation to other types of fraudulent payments. One issue is that victims do not currently have the right to complain to FOS about the conduct of a bank which has received a fraudulent payment, rather than the victim's own bank.

The FCA has now proposed changes to its handbook which would require receiving banks and other payment services providers (PSPs) to handle any complaints in line with the FCA's usual complaints-handling rules. Eligible complainants would also be able to refer their complaints to the FOS should the receiving PSP not respond, or if they are unsatisfied with the PSP's response.

The consultation, which closes on 26 September 2018, forms part of a programme of work by the FCA and the Payment Systems Regulator (PSR) to better protect consumers from APP fraud. The regulators found that PSPs could do more to identify fraudulent incoming payments, and to prevent accounts from being compromised by fraudsters, following a super-complaint raised by consumer body Which? in 2016.

The FCA also intends to require PSPs to report data on the complaints about alleged APP fraud that they receive, in order to better inform its supervisory work. It will consult on this new requirement later in the year.

"The FCA takes push payment fraud and the harm it causes to consumers very seriously," said Christopher Woolard, the FCA's executive director of strategy and competition. "Our proposals build on our work in this area, and seek to reduce the harm experienced by victims of push payment fraud where they believe the bank who received the money did not do enough to prevent it."

There were almost 44,000 reported cases of APP fraud in 2017 according to trade body UK Finance, which published data on the topic for the first time in March. Businesses and consumers lost a combined £236 million through the frauds, with each consumer losing an average of £2,784 and each business losing an average of £24,355 per reported fraud.

PSPs were able to return only around a quarter of these losses to the victims, according to UK Finance.

The PSR, which regulates payment systems, has announced its intention to put in place an interim industry code to better protect victims of APP frauds by September. The regulator is developing a 'contingent reimbursement model', which will set out the circumstances in which consumers who have acted appropriately should expect to have funds lost to an APP scam reimbursed.

Civil fraud and asset recovery expert Jennifer Craven of Pinsent Masons, the law firm behind Out-Law.com, said that the FCA consultation was "further evidence of how serious the FCA is about tackling APP fraud".

"However, it is important that the message about tackling fraud through the use of civil recovery and tracing methods to identify fraudsters and lost monies is not overlooked – a point which this firm highlighted in its submissions to the PSR," she said.

"We also know that the FCA plans to consult, later in the year, on requiring PSPs to report data on the complaints about alleged APP fraud that they receive so that the data can be used by the industry as an indicator of progress on APP fraud and to inform FCA supervisory work. The sharing of data is welcome news, as opening lines of communications about fraud provides more opportunity for the industry to tackle it, and improve steps towards prevention," she said.