The new rules, which came into effect on Monday 7th October were introduced by the Payment Systems Regulator (PSR) to ensure consumers receive a consistent level of protection.
Payment firms will be able to charge a £100 excess, meaning customers may still lose out if they were scammed out of a smaller amount. The rules also only apply to APP fraud with payments made through bank transfers such as Faster Payments and CHAPS. Payments made over card, cash, and cheque won't be covered.
The new rules will apply to most payment firms including traditional high street banks and building societies, in addition to smaller payment firms and e-money firms. While consumers will only entitled to claim up to £85,000 from their bank or building society, there's scope to seek reimbursement via the Financial Ombudsman Service if your claim is larger and your payment firm refuses to offer you the full amount.
David Geale, Managing Director of the Payment Systems Regulator, said: "Our new requirements will see all payment firms involved facing strong incentives to introduce more robust ways of identifying and preventing these scams from happening in the first place.
"Firms have already made a good start in making changes and we expect to continue seeing new and innovative systems being rolled out to drive fraud out of our payment systems."
APP fraud is growing in popularity. In 2023 alone, £459.7m was lost to APP scams with just 62% of money lost returned to victims across the board. The new rules, dubbed "ground breaking" and "world-leading" by PSR make reimbursement mandatory for all types of APP scams.
What is APP fraud?
APP fraud is when a fraudster convinces you to send a payment from your bank account to a different bank account that you have no control over. This is different from other types of scams where your bank details are stolen and your card is used without your authorisation, for example.
With APP fraud, you agree to make the bank transfer because you have been tricked into believing it is for a legitimate reason. Some common types of APP fraud include romance scams and impersonation scams, for example.
Among the most common APP scams in 2023 were purchase scams. Purchase scams exist in many forms, but typically happen when a criminal advertises goods or services such as fake concert tickets or holiday rentals. The victim then pays for the goods or services via bank transfer and they never materialise. Purchase scam cases were up 34% year on year in 2023, accounting for more than £85m in losses across the board.
Romance scams accounted for more than 4,000 cases in 2023 with victims losing more than £36m, while invoice scams – when criminals impersonated legitimate businesses – accounted for around 3,000 cases and roughly £50m in losses.
What are the new APP fraud rules?
The new APP fraud rules offer reimbursement to victims of fraud who made payments to a different bank account via CHAPS or FPS. The victims are entitled to reimbursement of up to £85,000 within 5 business days of making their claim. They need to report the fraud within 13 months of the fraudulent payment to be eligible.
In some cases, payment firms can opt to "stop the clock" if they feel like they need more time to investigate a certain case. This gives payment firms up to 35 business days to carry out their investigation and arrive at an outcome.
If a victim's claim is larger than £85,000, their bank or payment firm can choose to reimburse above the limit on a case-by-case basis, but this is optional. If consumers do not get their full claim paid out, they can raise the issue with the Financial Ombudsman Service, which is a free, independent service that looks at each case on its own merits. The Financial Ombudsman Service compensation limit is £430,000.
The £100 excess rule
Under the new rules, banks can choose to withhold up to £100 of any claim. This means that you could potentially lose out on the first £100 of a fraud claim if a bank chooses to exercise its rights to do so.
However, the £100 excess rule does not apply to those customers who are deemed vulnerable.
According to the FCA (Financial Conduct Authority), vulnerable customers are those who are especially susceptible to harm due to their personal circumstances. This can include people in poor health, those with cognitive impairments, and those with poor literacy.
What are the exceptions to the new APP fraud rules?
There are some key exceptions to the new APP fraud rules which may mean you're not reimbursed. These include:
- Any cash, card or cheque payments you make to a scammer (only CHAPS and FPS payments are covered)
- Unauthorised fraud (when someone steals your information to make payments without your consent)
- Situations in which you don't receive goods or services from a legitimate supplier (or you receive defective goods or services)
All of these scenarios are governed by their own rules, so you will not be able to claim under the new rules in these circumstances.
Your bank can also refuse to pay out if it deems you've been grossly negligent. The bank will need to show evidence to explain how it's arrived at its conclusion. For example, it must show you've ignored "specific, tailored warnings" or that you ignored their requests for further information.
However, the gross negligence claim only works if you're not deemed to be a vulnerable consumer. If you are deemed vulnerable, the bank can't rely on gross negligence to withhold payment.
The only other reason why a claim which otherwise meets the criteria might be refused is if consumers are complicit in the fraud, i.e. if they are criminals themselves who are trying to defraud their bank.
How to claim if you've been scammed
If you have been the victim of an APP scam, you should raise a claim with your provider as soon as possible, but definitely within 13 months of the fraudulent payment happening.
If you're calling your bank, the best thing to do is ring the number on the back of your physical credit or debit card to ensure it's legitimate. Alternatively, make sure you access the bank's website by searching for their website independently via your browser, rather than clicking on any links you have been sent.
Consumer website Which? advises that if you are making a phone call immediately after a scammer has called you, you should either use a different phone line or wait a minimum of 15 minutes before using your phone, as some scammers can keep your phone line open and listen in on your call, potentially stealing sensitive information in the process.
Once you have notified your provider, the best thing to do is to follow their instructions and cooperate fully to ensure the issue is resolved as quickly as possible.
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