UK payment firms’ APP fraud compensation cap reduced to £85,000

The Payment Systems Regulator (PSR) has proposed the reduced compensation threshold ahead of 7 October 2024 when the new APP fraud reimbursement scheme will become mandatory for payment firms in the UK.

Under the scheme, payment firms, such as banks and building societies, will have an obligation to protect victims of this type of fraud, which occurs when someone is tricked into sending money to a fraudster posing as a genuine payee. The regulator said that APP fraud is a significant issue. Fraudsters often use methods such as social engineering and impersonation to manipulate and gain the trust of victims, and figures from UK Finance show losses of nearly £500 million across the UK last year due to APP.

Payment firms will be required to reimburse customers within five working days of a report that they have fallen victim to APP scams, subject to any ‘stop the clock’ provisions applying. Initially, the maximum compensation payable was set at £415,000 when the scheme was first introduced in December 2023. However, the figure has been brought down to £85,000, following a review conducted by the PSR.

The regulator’s review of over 250,000 cases found that there were 18 instances in 2023 of people being scammed for more than £415,000 and 411 instances of more than £85,000.  The analysis also highlighted that almost all high value scams are made up of multiple smaller transactions, reducing the effectiveness of transaction limits as a tool to manage exposure. 

If confirmed, the new maximum liability amount would be in line with the Financial Services Compensation Scheme (FSCS) limit which is currently £85,000. According to the PSR, this new amount would still ensure enhanced consumer protections against APP scams, with clear incentives on financial firms to continue doing all they can from preventing fraud from happening in the first instance. 

Michael Reading, financial services legal expert of Pinsent Masons, said this is positive news for UK payment providers. “The PSR’s statistics suggest that an increase to £415,000 would have only benefited a small percentage of victims of APP fraud, and increased the possibility of fraud, given the risk that fraudsters would view this route as a means to make dishonest claims,” he said.

Following the revised cap, consumers can still complain to the Financial Ombudsman Service (FOS) for losses over the £85,000 threshold. They will then have to demonstrate why the payment provider is at fault.

The previous maximum reimbursement value of £415,000 proposed by the PSR was in line with the FOS’s maximum reimbursement limit at that time.  

The PSR said that it is committed to keeping the compensation limit under consideration through its post-implementation review, and fully expect all firms to meet their obligations.