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Banks should be liable for scam victims' losses says consumer group

16 December 2016  |  13737 views  |  5 Security

Consumer group Which? has accused the UK's Payment System Regulator (PSR) of letting banks off the hook by not forcing them to reimburse customers who fall victim to online money transfer scams.

Which? had raised the issue with the regulator earlier this year, concerned that consumers had no legal right to claim money back from their banks in such circumstances.

The PSR subsequently launched an investigation and published an action plan. But while the regulator stated that banks must do more to prevent these scams happening in the first place, must produce better data around reports of scams and must react quicker to help consumers recover losses, it stopped short of making banks legally liable for any financial loss.

The PSR has "let banks off the hook" said Alex Neill, managing director of Which? home and legal services. "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."

The consumer body has long argued that UK retail banks have failed to keep up with changing consumer habits, notably the increasing number of bank transfers - more than 70 million a month compared to 100 million in a whole year. In addition, many of these transfers are done electronically.

Which? launched a reporting tool in November and within two weeks had more than 650 victims reporting losses of more than £5.5 million from money transfer scams.

Banks have countered that many of the vulnerabilities are beyond their control, such as the compromise of clients' personal data, and there are various legal obstacles when it comes to sharing crime-related data.

The banks have called for new powers for data-sharing and, along with the Financial Fraud Action group launched the Take Five campaign ealrier this year to urge consumers to think first before transferring money.

"There is no silver bullet," said PSR managing director Hannah Nixon. "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 co-ordinated industry-wide apporach to better protect consumers and we need to start it today." 

Comments: (5)

A Finextra member
A Finextra member | 16 December, 2016, 12:03

Looks to me like the PSR has is right in that the problem is one of individual responsibility. If you put cash in the post to someone and it's the wrong address it's not the banks fault! If it's delivered to the wrong address then you can blame (and pay more to insure against) the Post Office. That said there are two significant things that the Banks / Industry can do to improve the situation and for which Consumer groups would be much better campaigning on:

1. Implement confirmation of payee as part of the FasterPayments scheme (used for many such transfers). It adds a step to the payment process but provides consumer confidence that they are sending to the right person (using sort codes and account numbers hardly counts as recognizable identity).

2. Put in place a much slicker and consistent 'refund' process for faster payments so when money is sent to the wrong place there is an easy way to make a claim for a refund. Would also help identify and shut down the rogue accounts sooner.

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Kevin Johnson
Kevin Johnson - First Hawaiian Bank - Honolulu | 16 December, 2016, 17:42

Agree w/ Simon - how our customers spend their money is at their discretion. They have already voiced their displeasure over the questions they are asked as we collect data for CTR's, so anything beyond will only distance ourselves further from an enriching customer experience we are all desparately trying to achieve.

Banks can do more such as Simon suggests.  Another possibility is payee verficiation (vs confirmation), whereby payees can be scored as to their validity through various data sources and the score used as risk measure to communicate back to the customer.  This would engage the customer more in the process and add another layer of disclosure to hopefully stop the customer from making a mistake.

Ultimately though, the customer will do what the customer wants and it is their risk.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 16 December, 2016, 18:01

Payee confirmation was the first of my Five Ways to Stimulate Electronic Payments. When I was involved in the implementation of FPS for a Top 5 UK bank, I was told that this feature can't be supported because it would be tantamount to one bank coming to know another bank's customer information.

Not sure whether this is a genuine interpretation of customer confidentiality laws in UK or yet another cock-and-bull story told by banks to justify status quo instead of taking steps to improve CX.

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A Finextra member
A Finextra member | 19 December, 2016, 08:37

But is there not another issue? How are the fraudsters opening accounts to facilitate the collection of these funds. Are the AML/Due Diligence requirements being compromised

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 19 December, 2016, 08:45

AFAIK, AML was never meant to ferret out fraudsters and block electronic fund transfers directed to them. Unless KYC documents mysteriously get stamped with remarks like "Fraudster", "Scam Artist", and so on, I doubt if any amount of KYC due diligence will prevent such scams. Even then, there'll always be the first-time fraudster - or habitual fraudster masquerading as a first time fraudster under a different identity - who can't be caught. Somewhat like the best antivirus detection software still can't prevent a "zero day attack".

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