The UK has decided to cut back on the amount of money banks have to give back to people who fall victim to fraud. Before, banks were going to have to pay back up to £415,000, but now that number has been reduced to just £85,000. Consumer groups and watchdogs are calling this decision “outrageous” and worry it could ruin the lives of people who lose a lot of money to scams.

What Happened?

The Payment Systems Regulator (PSR), the organization responsible for overseeing payments in the UK, announced that they would be lowering the maximum amount banks must refund fraud victims. This comes as a surprise because they had previously said that setting the limit at £85,000 was too low. They even admitted that such a low limit would “exclude a significant number of victims.” So, why the sudden change?

Why Are People Angry?

Consumer groups like Which? are furious. They believe this decision could leave hundreds of people financially devastated. Many fraud victims fall prey to scams involving large sums of money, such as investment scams or scams where they are tricked into transferring money when buying a house. These scams can lead to huge losses, and with this new lower refund limit, victims could end up losing six-figure sums without any hope of getting it all back.

Which? called this decision a “screeching U-turn” and said that the regulator is abandoning people to protect parts of the finance industry that have been criticized for allowing financial crimes to happen. Essentially, they think the decision was made to benefit banks and financial companies rather than protecting the public.

How Did We Get Here?

Fraud in the UK has been rising sharply in recent years, especially scams known as “authorised push payment” (APP) frauds. These are situations where scammers trick people into sending them money by pretending to be someone else, like a builder, lawyer, or even a government official from HM Revenue and Customs. Sometimes, fraudsters pretend to sell products or services that don’t exist. In other cases, they make victims believe they are in a romantic relationship. All these tricks have led to people losing thousands, or even hundreds of thousands, of pounds.

To tackle this, many banks and financial firms had agreed to a voluntary code to refund victims. However, consumer organizations said the way refunds were handled was inconsistent and often unfair. As a result, the regulator proposed a new set of rules that would require all banks and payment companies to refund victims who had been scammed, with a cap of £415,000. This was seen as a positive step to protect people from losing their life savings to fraud.

What Was the Reaction from Banks?

Banks, especially smaller financial firms, were not happy with the high refund limit. They argued that being forced to pay back such large amounts could seriously harm their businesses. They lobbied for the limit to be reduced, claiming that the higher limit could also encourage criminals to try and exploit the compensation system. Banks even warned that having to pay back large sums might push some small fintech companies out of business.

The debate wasn’t just between banks and consumer groups. There were reports that both past Conservative and current Labour government members had concerns about the high refund cap. They worried about the potential impact on smaller companies and the risk of abuse.

What’s the New Rule?

After “listening to concerns,” the PSR decided to propose a new maximum refund limit of £85,000, starting from October 7th. Some companies had asked for this start date to be pushed back, but the regulator didn’t agree to that.

What Does This Mean for Consumers?

The reduced refund limit means that more people who are victims of fraud will likely not get all their money back. For high-value scams, especially those involving big investments or house purchases, this new rule could be devastating. It seems like the decision is more about protecting banks and financial firms rather than ordinary people. The consumer group Which? thinks that victims will end up suffering while the finance industry gets away with doing less to prevent fraud in the first place.

The Bigger Picture

Fraud is a big and growing problem in the UK. In 2023 alone, APP fraud losses were a staggering £459.7 million, with 232,429 reported cases. While some progress has been made in getting banks to take more responsibility, the latest decision by the PSR to reduce the refund cap is a significant setback. The question many are asking is, who is the PSR really working for—the people or the banks?

What’s Next?

Consumer groups are urging the public to speak up and push for better protection from fraud. Many believe that the £85,000 cap isn’t nearly enough, especially when fraudsters are getting more sophisticated every day. They are calling for more consistent and fair rules that truly protect everyone from becoming victims of scams.

In the end, this decision by the UK regulator highlights a tough balancing act between protecting consumers and supporting financial companies. But for now, it seems that big banks and financial firms have won, and ordinary people are left to pick up the pieces.