Fraud Compensation Plans Slashed: What you need to Know and How to Stay Protected
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To learn more about these changes and what they mean for you, let’s take a look at what you need to know.
It’s important to know your rights and stay one step ahead of the scammers!
What is APP fraud?
Authorised push payment fraud happens when a scammer tricks you into sending money by pretending to be a legitimate business or person. They may pretend to be a tradesperson or lawyer. Or they might even try and sell fake products on the internet. Once the money is transferred, it’s often hard to recover.Right now, banks are not required to refund these losses, although some may do so voluntarily. New rules will soon make it mandatory for banks refunding fraud victims. However, the amount of compensation is not as generous as initially planned. After pressure from financial companies, the cap was reduced to PS85,000.
Consumer groups, including Which?, have criticised the move, calling it “outrageous” and accusing firms of not taking fraud seriously.
The PSR argues that the lower cap will still cover more than 99% of fraud cases, and only a small number of victims will lose out. In fact, of the 250,000 frauds reported in 2023, only 18 of them involved more than PS415,000 and 411 involved losses exceeding PS85,000.
The banks are required to split refunds between sending and receiving institutions 50-50 on 7th October 2024.
However, the new cap still leaves some people exposed, especially those caught up in large-scale frauds.
Growing concerns about rising fraud
The reduction in compensation comes at a time when fraud and scams are reaching record levels. The Financial Ombudsman Service reported the highest number of complaints it has received in six years. 8,734 fraud or scam disputes were filed between April and July this year. The sophistication of scammers is increasing. They target people who are distracted and busy, particularly after summer holidays when they are organising their finances and schedules.
UK Finance’s Take Five to Stop Fraud campaign encourages people to pause and think before sharing personal details or transferring money to avoid being tricked.
Investment scams: a growing threat
Investment scams are also on the rise, with fraudsters often using social media to lure in victims. They present alleged “investment” opportunities that sound too good to be real – but they are.
Banks and other financial institutions are dealing with more claims as fraudsters find new ways to exploit the system.
What can you do to protect yourself?
Fraud is a distressing experience, not just financially but emotionally as well. Abby Thomas of the FOS says that fraud can happen to anyone. It’s not a shame to seek help.
However, fraud can happen to anyone, and there’s no shame in seeking help.
Here are some steps to help protect yourself from fraud:
Pause before you pay
: Don’t rush to send money, especially if you’re feeling pressured.
Verify the request
: Always double-check with the company or person directly if you receive unexpected requests for payment.
Look for red flags
: Be cautious of deals that seem too good to be true or urgent messages asking for money or personal information.
Report fraud
: If you think you’ve been a victim of fraud, contact your bank immediately. You may be able for them to freeze your transaction or refund you money.
The FOS can settle disputes and order firms to pay compensation.
Most high street banks have signed up to the Contingent Reimbursement Model (CRM), a voluntary code designed to protect customers from APP fraud.
However, from 7 October 2024, the Mandatory Reimbursement Requirement will replace the CRM, covering most UK money transfers, though international transfers and cryptocurrency transactions will be excluded.
While this new mandatory rule ensures that victims are compensated for most scams, the reduced refund cap is something to keep in mind.
Staying vigilant and aware of the risks is key to avoiding financial loss.
Final thoughts
Fraud is on the rise, and while the new regulations promise to protect the majority of scam victims, the reduced cap means that some may lose out. Staying informed and cautious will help you avoid falling victim to scammers.
If you ever feel unsure, it’s always best to pause, verify, and report any suspicious activity to your bank or a trusted authority.
Ricky Willis is the original Skint Dad. Money-making enthusiast and father to Naomi. He’s always on the lookout for new ways to make a little more money.
