Understanding the changes in Authorised Push Payment (APP) fraud reimbursement

Key Features of the New Reimbursement Framework

1. Mandatory Reimbursement Obligations:

Under the new regulations, PSPs are required to reimburse victims of APP fraud for losses of up to £85,000 within seven days of reporting the fraud. This marks a significant shift from previous guidelines, aiming to provide quicker compensation to victims and mitigate the financial impact of such scams.

2. Reduction of the Reimbursement Cap:

Initially, the PSR suggested a reimbursement cap of £415,000; however, this was reduced to £85,000 following industry feedback, particularly from smaller firms concerned about the potential risks associated with a higher limit. Despite the reduction in cap, the PSR noted that approximately 99.8% of faster payments APP fraud cases by volume and 90% by value will still be fully reimbursed within the new policy scope. The PSR has committed to reviewing this cap after an initial 12-month period.

3. Expansion of Coverage:

The new framework includes CHAPS (Clearing House Automated Payment System) payments within the scope of APP fraud reimbursement thereby ensuring a uniform approach across different payment systems. This means that fraudulent transactions processed through CHAPS will also be subject to the £85,000 reimbursement limit.

4. Delayed Payment Provisions:

PSPs can delay payment processing for up to 72 hours if they suspect fraud or dishonesty. This provision allows firms to investigate potentially suspicious transactions more thoroughly before executing payments, enhancing fraud prevention efforts.

5. Clarification on Civil Disputes:

Claims related solely to civil disputes are not covered under the reimbursement requirements. Guidance from the PSR indicates that such disputes typically involve legitimate transactions where goods or services were not delivered or were defective.

6. Refusal of Reimbursement from PSPs:

Under the new reimbursement framework, PSPs are permitted to refuse reimbursement under two primary exceptions. First, if the consumer seeking reimbursement has acted fraudulently, known as the ‘first-party fraud’ exception, no reimbursement is required. Second, reimbursement may be denied where the consumer has acted with gross negligence by failing to meet the standards outlined in the ‘consumer standard of caution.’ These standards include adhering to PSP interventions, reporting the fraud promptly, providing requested information, and cooperating with the police. However, these standards do not apply to vulnerable consumers, for whom the standard of caution is disapplied, ensuring broader protection in cases of gross negligence.

Conclusion

The introduction of mandatory reimbursement rules for APP fraud represents a significant step towards enhancing consumer protection in the UK financial landscape. Payment service providers are urged to take proactive measures to adapt to these changes:

• strengthening their fraud prevention systems;
• complying with regulatory expectations; and
• ultimately safeguarding consumers from the adverse effects of financial fraud.

By adapting to these changes and prioritising consumer protection, financial institutions can better safeguard consumer interests and maintain the integrity of payment systems in an evolving, increasingly digital financial landscape.

If you need legal advice on how these regulatory changes may impact you, please contact our Banking & Finance team.