UK banks face 'step change' rule to reimburse defrauded customers

LONDON, Dec 19 (Reuters) - Britain's banks and other payment firms must reimburse defrauded customers to a maximum of 415,000 pounds ($529,000) from October next year to help combat scams, the Payment Systems Regulator (PSR) said on Tuesday.

The "step change" aims to bolster consumer protection against authorised push payment (APP) fraud, a common scam whereby people are tricked into sending money from their account to a fraudster posing as genuine payee.

UK Finance, a banking industry body, has said that APP fraud totalled 239.3 million pounds in the first half of 2023, with 152.8 million returned to victims.

"The action we're taking significantly increases the level of protection for people and puts the UK at the forefront of APP fraud protections globally," Chris Hemsley, PSR's managing director, said in a statement.

The PSR will monitor high value APP scams over the next 10 months ahead of the start date.

"Our approach incentivises banks and other payment firms to prevent APP fraud from happening in the first place while ensuring victims are protected in a consistent way."

To this end, the cost of reimbursement is equally divided between the firms sending and receiving the payment, putting fraud-prevention incentives at the receiving end for the first time.

A payment firm can deduct a maximum "excess" of 100 pounds from a claim, but not for claims from vulnerable customers.

Pockit, a fintech that offers payments, said smaller payment firms facing large new liabilities might opt out of same-day payments, or exit the market altogether.

"Unfortunately, the maximum reimbursement and claim excess levels set by the PSR today make all those outcomes even more likely," said Virraj Jatania, Pockit CEO and co-founder.

Consumers also have a responsibility to pay attention to fraud warning messages from banks, to tell the bank quickly if they suspect a fraud, and allow the incident to be reported to the police, the PSR said.

But there will be a "very high bar" for banks to show that a customer had not acted responsibly, and thus not be eligible for reimbursement.

"It will not be sufficient for a customer to have merely failed to meet one of these requirements, and the onus will be on the bank to prove that they acted with gross negligence," the watchdog said.

($1 = 0.7845 pounds) (Reporting by Huw Jones; editing by David Evans)