Banks to be forced to refund victims of fraud no matter what

Banks could be forced to refund all fraud victims in plans being proposed by the payments regulator, Telegraph Money can disclose.

A consultation is on track to begin within weeks that will investigate whether people who are tricked into transferring money to scammers should get mandatory refunds, this newspaper understands.

An industry source who confirmed the information said: “There is a big push from the Government to get this started before the end of the year. It’s tired of banks wriggling out of their responsibilities. I believe the preferred option is that all victims get refunded.”

Mandatory refunds would end the lottery that victims of bank transfer fraud currently face, where it is up to their bank to decide whether or not to reimburse them for their losses.

Most of the major banks, including Lloyds, Barclays and NatWest, signed up in May 2019 to a voluntary code of conduct that dictates how scam victims should be treated. It allows lenders to deny a refund if they believe the customer’s own negligence led to the fraud, for example if a victim ignored a warning that they may be facing a scam.

Richard Emery of 4Keys, a fraud investigation firm, said: “The wording in the code that explains the customer’s responsibilities is too vague and has allowed banks to avoid refunding innocent victims. In many cases, they aren’t even told why their claim has been rejected.”

Banks often avoid reimbursing customers by claiming they should have been more careful before moving money. However, scammers are becoming increasingly proficient at grooming victims into handing over cash or personal details, such as by pretending they represent their utility company or are from the fraud department of the person’s bank.

In the first six months of this year, lenders returned just 35pc of stolen funds to victims, according to figures from UK Finance, the banking trade body. Research from consumer group Which? found that one bank refused to refund customers fully in 99pc of cases. The group’s Gareth Shaw said the code was failing victims and should be urgently overhauled. Requiring banks to refund all scam victims would not only avoid this but would also likely incentivise them to prevent fraud happening in the first place.

One bank, TSB, independently promised to refund all innocent scam victims in April 2019 (revealed by The Sunday Telegraph, below). The bank’s Ashley Hart said: “We believe it is the right thing to do. Our unique approach has also seen significant benefits in fraud prevention and in hunting down the criminals behind these attacks in partnership with the police.”

One key question will be whether victims of fraud who have been rejected under the code should get reimbursed retrospectively if mandatory refund rules are introduced. An influential group of MPs has demanded they were. The Treasury select committee said last year that any innocent person who had been subject to fraud since 2016 should get their money back.

“Banks have been aware since around 2013 of the risk of fraud when people transfer money using only the sort code and account number without some way of checking the name on the account they are sending it to, but they have failed to act,” Mr Emery said. “They have been grossly negligent and must reimburse historic victims.”

Since June, major banks have implemented “confirmation of payee”, which checks the account number and sort code match the name on the recipient’s account.

But fraudsters have been ramping up activity during the pandemic. In the first half of 2020, more than 66,000 people fell victim to bank transfer scams, collectively losing £207.8m. The Payment Systems Regulator, which will lead the consultation, said it was keeping a close eye on banks’ behaviour.

“In the new year, we expect to consult on some of the other steps that may be required to make sure everyone benefits from the highest possible level of protection,” a spokesman said.

Katy Worobec, of UK Finance, said the voluntary code was not working as intended and there was a lack of consistency in customer outcomes.

She added that it would continue to work closely with the Government to find a solution.

Forcing banks to refund victims would stop people such as Michael Curzon from losing life- changing sums. The 60-year- old, who is semiretired for medical reasons, was tricked into transferring £20,000 to a woman called Patricia.

They met online in December 2019 and she soon began asking Mr Curzon for money to pay for her passport and flight tickets so she could travel from America to Britain to visit him.

“That trip fell through so I had to pay for it all again, but the second time included paying for her son to come over too. I was also covering her rent as supposedly they wouldn’t have a roof over their heads otherwise. I had to sell my van to be able to pay,” he said. When he realised months later he had been duped, his bank reimbursed him just £1,500 of the £20,000 he had lost: “I was absolutely sick and really upset. I had my hopes built up just for all of it to fall apart.”