Starting October 7, 2024, UK banks will be required to refund victims of fraud up to £85,000 within five days. This is a big change aimed at protecting people who are tricked into sending money to scammers. Earlier, most banks and payment companies would voluntarily refund victims, but now it’s a must. The Payment Systems Regulator (PSR) has introduced this new rule to help fraud victims get their money back more quickly and easily.

What Is Fraud and How Does It Happen?

Fraud, in this case, refers to something called authorised push payment fraud (APP). This is when criminals trick people into sending them money by pretending to be someone else—like their bank, a company, or even a tradesperson. Some scammers also claim to sell things that don’t actually exist.

For example, someone might call you pretending to be from your bank and tell you that your account has been compromised. They could then ask you to transfer your money to a “safe account,” which is actually theirs. Once the money is sent, it’s very hard to get it back. These scams have become more common in the UK, with cases of APP fraud increasing by 12% in 2023 alone. That’s over 232,000 cases, with a total loss of nearly £460 million.

The New £85,000 Limit

The PSR originally suggested that the maximum refund should be £415,000. But after feedback from banks and financial companies, the limit was reduced to £85,000. Although this is lower than the initial proposal, the regulator believes that this amount will still cover more than 99% of fraud cases. In 2023, there were only 18 cases where someone lost more than £415,000, and 411 cases where the loss was greater than £85,000.

One interesting feature of the new rule is that once a bank or payment company refunds the victim, they can recover half of the refunded amount from the financial institution that received the stolen money. This is a new idea designed to make sure that everyone involved is more careful and takes fraud prevention seriously.

Real-Life Example: Carol Alexander’s Story

Let’s take a look at what happened to Carol Alexander, a lecturer in Financial Markets. She lost almost £80,000 after being tricked by fraudsters. They got her to download software that gave them access to her bank accounts. Carol’s money was quickly transferred from her accounts at Santander and Tide.

“I felt awful, like I was part of the scam,” she told the BBC. “It was such a horrible experience.”

Carol managed to get £17,000 back from Santander the very next day, but it took 18 months to get the rest of her money from Tide. At one point, Tide only offered her £13.12 as a refund for the £63,000 taken from her account, saying that was all they could recover. Carol couldn’t believe it.

Luckily, after going to the Financial Ombudsman Service, a service that helps settle disputes between customers and financial companies, Carol got the full amount back, plus interest. Tide has since said they have improved their systems to prevent this kind of fraud from happening again.

What Do Experts Say About This New Rule?

The PSR is confident that this new rule will make a big difference for fraud victims. David Geale, the PSR’s managing director, explained that the new rules ensure all victims will be treated the same. Right now, some people might get refunds quickly, while others don’t get their money back at all.

“Whether you get reimbursed and how much depends on who you bank with, and that just isn’t fair,” Geale said. He also pointed out that allowing banks to claim back half of the refund from the bank the scammer used will push everyone to act faster. If banks can shut down fraudulent accounts sooner, fewer people will fall victim to these scams.

However, not everyone is happy with the new rules. Rocio Concha, the director of policy and advocacy at Which?, a consumer protection group, raised concerns that lowering the refund cap from £415,000 to £85,000 could have serious consequences. She believes this lower limit might reduce banks’ motivation to prevent fraud.

“The regulator has put victims at risk by reducing the amount banks are required to pay back,” she said. Concha warned that this change could negatively impact both the financial and emotional well-being of victims.

What Can You Do if You Are a Victim of Fraud?

If you find yourself tricked by scammers, there are steps you can take to get help. The Financial Conduct Authority (FCA) regulates financial services in the UK, and if your bank or payment company doesn’t help you, you can make a complaint to the Financial Ombudsman Service. This service is available to settle disputes and, in some cases, force banks to pay you back.

Many high street banks in the UK have already signed up to something called the Contingent Reimbursement Model (CRM) code, which helps protect customers from APP fraud. This code was voluntary, but the new rule, called the Mandatory Reimbursement Requirement, will take its place starting in October 2024.

Unlike the CRM code, which was optional, these new regulations will cover nearly all UK money transfers—except for international payments or those involving cryptocurrencies.