MPs take aim at ‘flawed’ plans to reimburse scam victims

Plans to reimburse victims of fraud by handing responsibility to a non-regulatory body sponsored by banks are “fundamentally flawed” and raise serious conflicts of interest, according to MPs.

In a scathing report MPs from the House of Commons Treasury select committee criticised the UK’s Payment Systems Regulator for planning to hand off responsibility for recompensing individuals targeted by scams to payments operator Pay.UK.

The regulator must take responsibility for the scheme itself, the MPs said, and not give the banking industry an opportunity to further delay its implementation.

“Victims of fraud have been waiting far too long for a fair and functional scam reimbursement scheme,” said Harriet Baldwin, Conservative MP and committee chair.

“While these new proposals are a step in the right direction, the way the regulator plans to implement them is fundamentally flawed. Putting an industry body in charge of reimbursing scam victims is like asking a fox to guard the henhouse,” she said, adding:

“The regulator needs to take back control of the reimbursement process, rather than leave it in the hands of an industry body which is inherently conflicted.”

Consumers lost more than £580mn in 2021 to authorised push payment fraud, where a scammer tricks someone into sending them a payment — a 40 per cent increase year-on-year according to UK Finance, the trade association for the UK banking and financial services sector.

In a report published on Monday the committee said fraud — the most common crime in the UK — caused “untold misery” to those scammed.

The payments regulator will be required to set up a system to reimburse victims of push payment fraud as part of the financial services and markets bill currently making its way through parliament.

Last year the PSR set out its plans in a consultation, in which it said banks and building societies should be required to fully reimburse victims of authorised push payment scams within two days of the fraud being reported, in cases where losses were more than £100.

But instead of using its own powers to directly force banks to reimburse fraud victims, the regulator proposed asking Pay.UK to maintain and enforce the new regime.

The committee said Pay.UK’s proposed role contained “inherent conflicts of interest.”

“Pay.UK is an industry body. It is a company guaranteed by the very banks and other PSPs it would be asking to reimburse fraud victims,” the report said. It added that the organisation was not a regulator, and lacked the “necessary powers to enforce its rules.”

The plans could create an opportunity for banks to further slow down implementation of the scheme, the MPs said, which had already been delayed to 2024.

The regulator said in a statement it was “pleased that the TSC supports our proposal around reimbursement in principle”, but said the report misinterpreted its proposal “on how our powers can be used to require this”, adding it had “provided clarification to the TSC on this matter.”

The PSR said payments operators such as Pay.UK had rules its users must follow, meaning any bank wishing to use Pay.UK would be forced to adhere to its reimbursement rules.

The fresh report comes more than three years after MPs on the previous Treasury committee called for reimbursement to be made mandatory.

Pay.UK said: “We welcome the committee’s report and its emphasis on the need for a standardised, regulated approach for all banks and building societies when it comes to APP fraud.”