PSR Responds To TSB Warning On APP Fraud Reimbursement Threshold

January 10, 2023
The UK’s Payment Systems Regulator (PSR) has responded to claims made by TSB Bank that new rules on reimbursement for authorised push payment (APP) fraud will exclude a significant number of victims.

The UK’s Payment Systems Regulator (PSR) has responded to claims made by TSB Bank that new rules on reimbursement for authorised push payment (APP) fraud will exclude a significant number of victims.

Last week, TSB published a statement in which it warned that the PSR’s incoming rules on reimbursement will lead to about a quarter of APP fraud victims’ claims being denied.

Under the proposed rules, which are set to be introduced in 2024, banks will be allowed to reject reimbursement claims from customers who lost less than £100 to APP fraud.

Although instances of sub-£100 fraud account for only a small proportion of overall losses to fraud in monetary terms, they make up a significant percentage of APP fraud cases.

According to TSB’s internal customer data, APP fraud accounts for about 44 percent of all sub-£100 fraud cases.

Moreover, APP fraud accounts for about two thirds (62 percent) of all bank transfer fraud cases among TSB customers.

TSB has, therefore, called on the PSR to reconsider the £100 threshold so as to ensure that victims of small-ticket APP fraud are not without redress.

“We welcome these moves by government and regulators to increase customer protection from fraud,” said Paul Davis, director of fraud prevention at TSB.

“However, many people simply cannot afford losing £100 to fraud — especially in the current economic climate — and deserve to be protected from increasingly complex scams that often take place on social media sites.”

In response, a PSR spokesperson told VIXIO that it stands by the £100 threshold, which in any case is only a minimum threshold, meaning that banks could set the threshold lower if they wish to.

“We want people to be better protected if they are targeted by a scammer, and our recent proposals aim to provide much greater and consistent levels of protection against APP fraud,” said the PSR.

“Our proposals will place strong incentives on banks to do more to detect and prevent APP fraud in the first place.

“Under our plans, banks will be required to reimburse the majority of customers who have fallen victim to APP fraud.”

As noted by the PSR, current reimbursement rates for APP fraud are about 56 percent, but that is set to rise significantly under the new rules.

During its consultations on this issue, the PSR said it aimed to impose a “minimum standard of protection across the board” against APP fraud, in line with protections for other payments and financial services.

In addition to the minimum threshold of £100, the PSR noted that it plans to impose a cap on excess per claim of no more than £35.

“However, banks can of course go much further by choosing to pay the whole amount of every claim,” said the PSR.

In addition to scrapping the £100 minimum threshold, TSB also wants to see the £35 excess scrapped, due to the disproportionate impact it would have on low-income customers who fall victim to APP fraud.

TSB seeks to lead by example

In 2019, TSB launched Fraud Refund Guarantee, the first of its kind in the UK, which ensures that customers are protected against all types of transactional fraud, including APP fraud.

Since then, TSB said it currently reimburses about 98 percent of all APP fraud claims, and it continues to campaign for higher fraud protections in banking and other adjacent sectors, such as social media and telecommunications.

Although broadly supportive of the PSR’s plans to introduce a new reimbursement mechanism for APP fraud, TSB’s heightened concerns about the £100 threshold are based on its reading of the types of customers that are likely to be affected.

For example, TSB’s internal customer data shows that about half of sub-£100 APP fraud cases are among 20-40 year-old account holders, and about one in six cases involve account holders over 60.

Similarly, TSB said about one in ten cases of sub-£100 APP fraud cases can be classed as advanced fee fraud, a sub-category of APP fraud that typically targets the most vulnerable.

Advanced fee fraud payments usually involve fake loans that are marketed by scammers who ask for an upfront fee before the loan is initiated.

TSB also said that, if the £100 threshold is allowed to stand, and is adopted by most banks, it would exclude a significant number of consumers who fall victim to APP fraud via social media.

According to TSB’s internal data, 80 percent of APP fraud cases originate from a Meta-owned social media platform, namely Facebook, Instagram or WhatsApp.

This aligns with similar data from UK Finance, which in 2021 found that 70 percent of all APP fraud cases begin online.

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