Will new safeguards be good enough?
A new code seeks to protect victims but does it go far enough? Sam Meadows investigates
New rules that lay out when victims of bank transfer fraud should be reimbursed remain littered with holes, experts have said. The new code is the culmination of months of work by a steering group set up by the Payment Systems Regulator (PSR). It is designed to provide certainty to victims in the face of a growing problem that saw criminals steal £145m in the first half of this year.
Under the rules, customers who took all reasonable precautions will be refunded if their bank failed to live up to the required standards. These include providing a specific warning if there is a risk of fraud, taking part in anti-fraud awareness campaigns and freezing funds as soon as they are identified as potential crime proceeds.
But consumer watchdogs argue that far more needs to be done. Jenni Allen of Which? said: “The new code will only be judged a success when banks’ actions to protect their customers result in fewer scams and those targeted by these sophisticated criminals are treated fairly and reimbursed swiftly.”
Here is what Telegraph Money believes needs to happen before it can be deemed a victory.
Enforcement as soon as possible
Telegraph Money had understood that the code would effectively be in use from the day the consultation was announced. The PSR said the Financial Ombudsman would begin to take it into account when making decisions.
However, a source close to the discussions said this requirement had been quietly dropped and, owing to a lack of consensus on several key issues, the code was not yet “in force” – although the five banks on the steering committee (Barclays, Lloyds, HSBC, Metro Bank and RBS) have agreed to bring the code into force immediately. The code is in any case voluntary, although it is expected that all banks will adopt it.
A further issue is that the code will not be retrospective. That means that people who have lost out already will have little hope of redress.
Don’t give banks a get-out clause
Consumer experts have said that the code must not become a way for banks to avoid paying up on a technicality.
Banks will now have to give specific warnings to customers if there is a risk of fraud and will not have to reimburse customers who ignore them. They could take the form of the sort launched by Santander last week. When they set up a new payee, customers will have to tell the bank the purpose for the money transfer and will then receive a tailored alert.
Martyn James, of complaints service Resolver, said he was concerned that consumers could become fatigued by frequent pop-up fraud warnings and that banks could use them as a “get-out clause”.
He added: “The banks have to continue to adapt as fraudsters adapt. If I were a fraudster I would phone you up, talk you into making the transfer and say it’s going to come up with a series of warnings but don’t worry about them, your money’s safe.
“We don’t want to see banks using this as an excuse not to pay.”
Agree on ‘no blame’ refunds
One of the crucial disagreements laid out in the consultation documents is a
lack of agreement on who refunds the defrauded in the “no-blame” scenario.
The steering group agreed that consumers should be reimbursed, but it appears that the banks are reluctant to fund reimbursement when they have not breached their own rules. The consultation document admits that customers of the five banks that have adopted the code who fall victim in these circumstances in the next few months are unlikely to be reimbursed.
Among the options given for funding these refunds is a charge on all high-value bank transactions and an insurance policy to be sold when a consumer makes a high-risk transfer.
James Daley, of consumer group Fairer Finance, said it would not be right for costs to be passed on to customers. He added: “If banks can’t build systems that protect from fraud, that is their problem. They shouldn’t make consumers pay.”
Adapting as fraud evolves
It is also vital that any code adapts as fraud methods evolve. Mr James said criminals constantly changed tactics and rules could quickly become outdated. The steering group was set up for the purpose of creating the code and there is currently no agreement on who will manage it in future. The PSR and UK Finance, the banking trade body, both said they were the right bodies to take on this task.
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Some banks have agreed to enforce the new code immediately