Payments regulator slashes maximum fraud compensation limit

The Payment Systems Regulator (PSR) has confirmed it intends to slash the maximum amount of fraud compensation banks and payment providers will have to pay out to scam victims.

Under its original plans, which were set to come into force from 7 October, the PSR was going to bring in a mandatory pay-out limit to reimburse the losses of Authorised Push Payment (APP) fraud victims. This maximum would have covered any losses up to a total of £415,000.

However, in an announcement on Wednesday (4 September), the regulator said it was now proposing to bring the upper limit in line with that of the Financial Services Compensation Scheme (FSCS) at £85,000 - 80% lower than the maximum amount it had previously proposed.

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At present, there are no rules forcing firms to compensate customers who fall victim to APP fraud, although many companies do offer at least some form of reimbursement. This type of fraud sees victims getting tricked into sending money directly to criminals. For example, it can involve people making payments for goods or services that don’t exist.

According to the Financial Times, the PSR had come under significant pressure from ministers and the industry to reduce the proposed limit. City Minister Tulip Siddiq, her Conservative predecessor Bim Afolami, as well as banking trade body UK Finance, were named by the newspaper as being among those who had been lobbying for the changes to be made.

It comes after statistics from UK Finance, which were published in May, showed fraudsters managed to steal £3.2m a day in 2023. The number of APP cases was found to be at a record level having grown 12% year-on-year to 232,429.

PSR: new fraud compensation limit ‘strikes right balance’

Justifying its move, the PSR said its analysis of UK scam cases showed there were just 18 instances of more than £415,000 being stolen through APP fraud in 2023. This figure came out of a total caseload of more than 250,000. There were 411 instances of victims losing between £85,000 and £415,000.

With the number of high-value fraud cases at such a low level, it said the new £85,000 limit should cover 99% of fraud claims. The regulator added that the FSCS compensation limit was “well understood” by consumers, suggesting its new approach would benefit from that.

PSR managing director, David Geale, said: “We listened to concerns about the reimbursement limit and committed to collecting more evidence to inform our approach. As a result, we are now consulting on a limit that still covers the vast majority of authorised push payment scams and strikes the right balance. Under our proposals, consumers in the UK will still receive world-leading protection, payment providers will still be heavily incentivised to improve anti-fraud protections and we maintain effective market competition and innovation.”

The regulator is now running a short consultation on its updated proposals. It closes on 18 September, ahead of the implementation of the new rules on 7 October.

Rocio Concha, director of policy and advocacy at consumer watchdog Which?, criticised the move. He said: "It's outrageous that the payments regulator is set to water down vital scam protections weeks before they were due to take effect and that this move follows months of lobbying from firms that refuse to take fraud seriously.

"Slashing the reimbursement limit risks exposing victims of the highest value scams to devastating financial and emotional harm and also significantly reduces crucial financial incentives for payments firms to put in place effective fraud security measures. This makes it more likely that scammers will continue to thrive on some payment platforms."