Banks urged to support fraud victims more fairly and consistently

An investigation by consumer group Which? has found that banks are getting decisions about certain customer scams and reimbursement wrong in the majority of cases.

The research has analysed which banks are most often found to be treating authorised fraud victims unfairly, with some firms getting decisions over scams and reimbursement wrong in nearly nine in ten cases.

Most major banks have signed up to a voluntary reimbursement code on bank transfer scams, also known as authorised push payment fraud (APP), which not only instructs them to reimburse customers who are not at fault, but also to provide them with adequate support.

However, the number of new authorised fraud complaints – the vast majority of which are APP – made to the Financial Ombudsman Service (FOS) more than doubled in 2020-21, from 3,600 to 7,770. Three-quarters (73%) of these were upheld in favour of the customer. Authorised fraud also includes some card fraud, where the dispute is about whether the consumer authorised a payment or withdrawal with their card.

Figures obtained exclusively from the Financial Ombudsman Service (FOS) by Which? show that NatWest and The Royal Bank of Scotland (RBS) – part of the same banking group – are getting it wrong in nearly nine in 10 (86%) cases, with Santander (82%) and Bank of Scotland (81%) following closely behind. While challenger bank Starling (80%) also had a high complaint uphold rate, this was based on a much smaller number of closed cases than other firms.

Fraud complaints against Lloyds Bank (78%), Revolut (77%) and Nationwide (74%) are also being upheld in favour of the victim. Aside from Revolut, all of these banks are signed up to the voluntary scams code.

The figures shine a light on how individual firms have been dealing with bank transfer scams, where customers have been unhappy with their banks’ response and taken their complaint to the FOS. However, Which? has called for much greater transparency about firms’ behaviour and approach to reimbursement – which would require the Payment Systems Regulator (PSR) to make banks regularly publish data, including their reimbursement rates for all of the APP fraud cases they handle each year.

The figures also indicate the banks working with the FOS to settle cases quickly and those that are dragging their heels and making scam victims suffer for months, or even more than a year. On average, in the last financial year, it took nine and a half months for the FOS to resolve an authorised fraud complaint.

While 40 per cent of all complaints to the ombudsman are resolved within three months, this figure is just 20 per cent for complaints about authorised fraud.

But firms can resolve batches of complaints before they get to ‘view’ stage (before an investigator reviews the evidence of both parties). While this still means too many victims are being forced to fight for a fair outcome, early resolutions do at least indicate which banks are willing to learn from past cases.

The FOS data shows that NatWest is very proactive when it comes to settling complaints before a view is issued, having settled 465 cases in relation to authorised fraud complaints covered by the voluntary reimbursement code since April 2020.

In stark contrast, HSBC settled fewer than 10 cases early, Santander settled 16, and Lloyds Banking Group – which includes Bank of Scotland and Halifax – settled 82. All three also had a disproportionate number of authorised fraud cases still open at the end of the last financial year.

The current reimbursement lottery leaves many victims facing an uphill struggle to recover their money when they have been targeted by criminals through no fault of their own.

That is why Which? wants the government to swiftly make the necessary changes to enable the Payment Systems Regulator (PSR) to introduce mandatory APP fraud reimbursement obligations on all firms using Faster Payments, with a robust regime of regulatory oversight and enforcement.

Jenny Ross, Which? Money Editor, said “Fraud can have a devastating financial and emotional impact on victims, so it’s shocking that so many banks are failing to handle cases correctly, often wrongly and unfairly denying victims reimbursement. It’s clear banks can’t be trusted to make the right decision when it comes to reimbursing their customers who’ve fallen victim to APP scams.”

“The payments regulator must urgently introduce mandatory and more robust requirements for all payment providers, to ensure that customers are protected and treated consistently when they fall victim to bank transfer scams. The government must swiftly take the necessary action to enable the regulator to introduce a reimbursement obligation on all firms using Faster Payments.”