Banks should be made by law to refund fraud victims, MPs say

Treasury Committee calls on banks to look at reimbursing victims of transfer scams since 2016

Criminals stole £616m from consumers in the first half of this year through bank fraud (iStock)

Banks should be required by law to reimburse victims of transfer scams to help tackle the “serious and growing problem” of economic crime, MPs have said.

The Commons Treasury Committee also said banks should consider refunding thousands of victims who have lost hundreds of millions of pounds since 2016 when they were warned that they were failing in their duty to protect customers.

The committee’s report, released on Friday, warned that scammers were using “ever more sophisticated” methods to defraud people.

Criminals stole £616m from consumers in the first half of this year through bank fraud, official figures released last month show. That included £207.5m of bank transfer scams – a 40 per cent jump in one year.

In transfer scams, victims are persuaded by criminals, who often pose as bank staff or authority figures, to agree to authorising a transfer to another account.

A voluntary code to prevent this type of scam – officially known as authorised push payment fraud – and reimburse victims who have met certain criteria came into effect in May.

The committee said this scheme should be made compulsory and banks “should consider retrospectively reimbursing customers back to 2016”.

The committee said: “Financial firms have been warned since 2016 that they have been failing in their duty to protect customers by not linking information on account names to payments. Firms should strongly consider whether refusing to retrospectively reimburse customers who relied on the payee name is fair and just.”

Criminals rely on the name of the payee account not being checked and cross-referenced during payments while account numbers and sort codes are – a weakness MPs dubbed a “serious failure” by banks.

The new confirmation of payee (CoP) system will ensure the payee’s name is also checked.

MPs called for the introduction of a 24-hour delay for all first-time payments to allow consumers to “remove themselves from the high-pressure environment in which they are being manipulated”.

The MPs’ report said banks should educate customers about the risks of becoming a money mule, where individuals allow their accounts to be used to move criminal funds.

There were around 40,000 cases that “bore the hallmarks” of money mule activity in 2018, the report said.

It said there also needs to be an accepted definition of “gross negligence” agreed by regulators so there is consistency in banks deciding how much an unauthorised fraud was down to a consumer’s own actions.

MPs argued the process of reporting economic crime needs to be clarified, with consumers being unsure whether to contact their bank, the police or Action Fraud, the national reporting centre for fraud.

They said the publication of the government’s Economic Crime Plan 2019-22 in July was “long overdue” and called for an update within six months.

Commenting on the report, Gareth Shaw, head of money at consumer group Which?, said a lack of swift action by banks on measures such as CoP had “allowed fraudsters to steal hundreds of millions of pounds – causing untold misery for thousands of victims”.

He said most major banks had signed up to the code, and backed the committee’s call for it to be made compulsory.

Mr Shaw said the industry needs a long-term plan to ensure scam victims are reimbursed and “to prevent a return to the dark days of innocent victims losing their life savings to these criminals”.

A government spokesperson said: “Tackling fraud is one of our top priorities and our approach has made us a global leader in fighting it. But we know there is more to do.

“That’s why in the summer we published our Economic Crime Plan, bringing together law enforcement with the public and private sectors in closer cooperation than ever before, to take on dirty money and ensure we maintain this position.

“We will respond to the committee’s report in due course.”

Additional reporting by PA