There are growing concerns from the regulators, the treasury and the FOS in relation to the increasing sophistication of payment fraud scams and whether enough is being done to protect and educate customers.
On 21 August 2018, the FOS published its newsletter 'Fraud and Scams: a moving picture'. This gives views from the industry bodies working together to combat payment fraud - including from Lead Ombudsman, Pat Hurley, Managing Director of the PSR, Hannah Nixon, and Managing Director Economic Crime for UK Finance, Katy Worobec.
Here are our 5 key points to note:
- The stats: "According to the latest data from UK Finance, banks and card companies prevented nearly £1.5 billion from being lost to fraud in 2017. However, more than £730 million was still lost - with Authorised Push Payment (APP) fraud…accounting for a further £236 million of stolen payments."
- The view from the FOS: the FOS says it is concerned over an increasing trend of firms claiming customers, have acted with "gross negligence" in circumstances where the FOS believe the customer has fallen victim to highly sophisticated payment fraud scams. The FOS says "gross negligence" should not be referred to lightly and the increasing sophistication of scams means that the bar for gross negligence is high (it's more than just a test of whether someone was careless). It considers its challenge is to decide what is fair and reasonable in an 'ever-changing state of play' in the sophistication in payment fraud scams.
- The view from the PSR: The PSR says it is developing a number of initiatives to respond to the issue of fraud and provide greater levels of protection, in particular (1) increased obligations to report data on APP scams, (2) guidelines to make it harder for fraudsters to open bank accounts, (3) the introduction of confirmation of payee allowing customers to verify who they are paying and (4) improved data sharing between banks to enable them to work together to respond to scams more effectively.
- The view from UK Finance: UK Finance says it is working closely with the industry to develop a comprehensive set of initiatives to address payment fraud scams, in particular (1) new best practice standards for responding to APP scams, (2) the Suspicious Activity Reports programme, (3) guidance on data sharing between its members, developed with the ICO (4) the Banking Protocol, which enables branch staff to alert the police and Trading Standards on suspicion of fraud, (5) the Dedicated Card and Payment Crime Unit, a specialist police unit to tackle organised criminal gangs and (6) the Take Five to Stop Fraud campaign to educate consumers on the social engineering techniques used by fraudsters.
- The collaboration: Alongside the above, the industry is also working together to produce the industry code on tackling APP scams which aims to give greater protection and a better chance of reimbursement to victims. It is anticipated that the code will be subject to public consultation from September 2018, to be refined in early 2019. FOS will be able to take the code into account when determining new consumer complaints about APP scams.
Comment - the view from TLT
There has clearly been significant progress by the industry as a whole in working together to combat payment fraud. This is reflected by the range of initiatives that have been put in place over the last 12 months and the £1.4 billion that was prevented from being lost to fraud last year by the banks' advanced security systems. However, the comments from the FOS in relation to the high bar for gross negligence and the increasing sophistication of payment fraud scams means that there must be an increasing focus on education by initiatives like the 'Take Five to Stop Fraud' campaign. This will be a continuing challenge and as Pat Hurley says, "as consumers' understanding and banks' security measures evolve over time a complaint [FOS] uphold today may not conceivably be upheld in a few years' time".
Contributors: Warren Clark, Alanna Tregear and Elena Kyriakou.
For further information please contact Warren Clark (Partner) or Alanna Tregear (Associate).