Push payment fraud update

With effect from 7 October 2024, the Payment Systems Regulator (“PSR”) has introduced a new Mandatory Reimbursement Requirement Framework (“the Framework”) for authorised push payment (“APP”) fraud. 

The Framework requires all UK Payment Service Providers to reimburse customers who fall victim to APP fraud. 

We provided an update into APP Fraud in August 2024 which can be read here.

The Framework includes a maximum reimbursement level of £85,000, which is a reduction from the initially proposed £415,000. The reimbursement costs will be split equally between the customer's financial provider and the financial provider used by the fraudster. The Framework also introduces a 'standard of consumer caution’, which could see reimbursement claims denied if the customer is found to have acted with gross negligence.

The current protection against APP fraud is provided by the Contingent Reimbursement Model (“CRM”) Code (“the Code”), overseen by the Lending Standards Board (“LSB”).  The CRM Code ensures a consistent approach to reimbursing victims and preventing APP fraud, covering around 90% of UK APP fraud cases. 

Since its introduction in 2019, the Code has improved reimbursement rates and slowed the growth of APP fraud. However, not all UK banks and lenders are signed up to the Code, leading to inconsistencies in customer protection.

The new Framework differs from the Code in several key aspects. While the Code has no reimbursement limit and does not levy an excess fee, the Framework allows for a claim excess of up to £100 and sets a maximum reimbursement level. 

Additionally, the Framework does not impose a binding, sector-wide obligation on prevention and detection, unlike the Code, which includes requirements for financial providers to support, educate, and communicate with customers affected by APP fraud.

The Framework requires that customers must be reimbursed within five business days, with exceptions for cases of fraud or gross negligence by the customer. Vulnerable customers are exempt from the standard of caution and the excess fee. 

In addition, changes will be brought about by The Payment Services (Amendment) Regulations 2024 will allow Banks to pause payments for up to four days to enable them to investigate fraud will come into effect from the end of October 2024.

The new regulations are in response to lobbying from Banks who have argued they require time to consider whether payment patterns are irregular and investigate where any spending is unusual. They also argued that the £415,000 reimbursement level was too high. 

Whilst the ability to pause payments will be welcomed by many, some sectors consider the new rules could cause potential problems for parties such as those buying a new home who would need to move large sums of money fairly quickly.

Garon Anthony, Financial Services Partner, comments:

“The introduction of the Framework, together with the new Regulations provide a greater clarity for consumers who are targeted by increasingly sophisticated methods by a growing number of fraudsters.

“Whilst the changes will not please everyone, particularly the reduction of the reimbursement level from that originally proposed, a spread of financial risks across the financial providers, together with the additional time to investigate whether flagged activity is potentially fraudulent, will hopefully provide reassurance to consumers that their interests are protected.”