UK consumer protection plans are ‘half baked’, say MPs

UK regulators’ plans to protect the hundreds of thousands of people tricked into sending payments to fraudsters each year are “half-baked” and will exclude almost a quarter of all victims, an influential cross-party group of MPs has warned.

The House of Commons Treasury select committee (TSC) on Saturday voiced concern over proposals set out by the Payments Systems Regulator and urged officials to “get their skates” on to refine new rules aimed at curbing “authorised push payment (APP) fraud”.

The crime — which involves fraudsters tricking people into transferring money to accounts whose owners are not who they claim to be — has drawn the attention of politicians following a rise in the number of consumers and companies affected.

According to trade body UK Finance, victims’ losses rose more than 40 per cent year on year to almost £580mn in 2021, with about 350,000 documented cases of the fraud.

The TSC’s statement came as it published correspondence from the PSR — an arm of the Financial Conduct Authority — detailing its plans to implement mandatory reimbursement measures for victims of APP fraud, under new powers that will be handed to it by the government’s sweeping package of financial regulation legislation.

Under current proposals, banks are only legally obliged to compensate customers who lose more than £100 — a policy defended by the PSR at a TSC hearing in December last year as striking the right balance between giving consumers some protection and encouraging “customer caution”. The level is also aligned with compensation for credit card fraud.

The PSR’s new measures — which will take effect within six months of the financial services and markets bill becoming law — also do not mandate compensation for consumers who display “gross negligence”, a definition that the TSC wants more clarity on.

“Regulators need to get their skates on and sort out all of these exclusions and criteria quickly,” said TSC chair Harriett Baldwin. “Our committee will keep up the pressure so that implementation is not dragged out or half-baked.”

In response, the PSR said it welcomed the TSC’s “continued interest in this important matter” and that its plans would lead to a “significant increase on current reimbursement rates, which are around 56 per cent.”

“We recognise a loss of up to £100 can still be a high-impact and life-changing event for many consumers, particularly due to the current pressure on the cost of living,” the PSR added, noting that its proposals allowed banks to waive the £100 threshold.

The PSR’s is due to publish its final position in May. The Financial Services and Markets Bill is at committee stage in the House of Lords and is expected to become law later this year.

The PSR said its analysis had shown that 21 per cent of all APP fraud involved less than £100 in 2021. Last year, that percentage rose to 24 per cent, according to research involving eight members of UK Finance. But even then, the amount involved was less than 1 per cent of the value of those companies’ total cases.

The TSC’s statement comes after its criticism last month of the PSR’s “fundamentally flawed” decision to outsource the proposed reimbursements to payments operator Pay UK.