Finance ombudsman overturns more than three-quarters of bank decisions on APP fraud

The Financial Ombudsman Service (FOS) has overturned more than 75% of decisions referred to it by consumers after banks refused to pay them back for losses to authorised push payment (APP) scams.

Through a voluntary reimbursement code, banks are instructed to reimburse victims of APP fraud, which occurs when criminals use fake websites and emails to trick consumers into authorising payments to them.

Figures from consumer rights organisation Which? show the FOS is receiving a growing number of complaints from consumers that they are not being reimbursed. In 2020 to 2021, complaints increased from 3,600 to 7,770.

Three-quarters of these complaints were supported by the Financial Ombudsman Service, resulting in the customer being reimbursed.

The bank with the highest proportion of decisions overturned was NatWest Group, which includes the Royal Bank of Scotland, where 86% of cases referred by unhappy customers were supported by the ombudsman.

Santander saw 82% of complaints about it supported by the Financial Ombudsman Service, while the Bank of Scotland got it wrong 81% of times, according the industry ombudsman.

It is not only traditional banks that are seeing their decisions reversed, with app-based bank Starling seeing the FOS disagreeing with 80% of cases referred to it, although this was based on a much smaller number of closed cases than other firms, according to Which?.

Over three-quarters (78%) of complaints against Lloyds Bank and 74% against Nationwide were upheld in favour of the victims.

“It’s clear banks can’t be trusted to make the right decision when it comes to reimbursing their customers who’ve fallen victim to APP scams”

Which? wants the government to make the necessary changes to enable the Payment Systems Regulator to introduce mandatory APP fraud reimbursement obligations on all firms using Faster Payments, with regulatory oversight and enforcement.

“It’s clear banks can’t be trusted to make the right decision when it comes to reimbursing their customers who’ve fallen victim to APP scams,” said Jenny Ross, money editor at Which?.

“The payments regulator must urgently introduce mandatory and more robust requirements for all payment providers, to ensure that customers are protected and treated consistently when they fall victim to bank transfer scams,” she added. “The government must swiftly take the necessary action to enable the regulator to introduce a reimbursement obligation on all firms using Faster Payments.”

A Nationwide spokesperson said its members were experiencing more scams which require careful consideration. “Each is assessed on its own merits, taking into account steps taken by the members to protect themselves, our own actions and wider factors such as any vulnerability. We work openly and closely with the FOS to understand its views on these cases and continue to make enhancements to fraud/scam measures as a result,” the spokesperson said.

NatWest said its “proactive stance and relationship with FOS has brought forward the settlement of many of our cases earlier than required” which meant its “overturn rate for the period is inflated”. It added that it expected this to “normalise in 2022”.

A Starling spokesperson said that having studied the FOS data it questioned the conclusions. The bank only had 29 of 120 new cases resolved in the relevant period. “This is too small a number of resolved cases to be statistically significant. This is especially true when you are comparing Starling with other banks.”

The spokesperson also said the wide variation between banks in the proportion of resolved cases further undermined conclusions about what constitutes the average rate. “Overall, we note that, based on this data, Starling accounts for 0.6% of the cases upheld against all banks.”

But Starling added: “Where cases are resolved one way or another, we take on board the FOS’s findings.”

In January, Starling founder and CEO Anne Boden said other sectors must shoulder some responsibility for APP scams, particularly social media platforms.

“The banking and finance industry invests billions in advanced systems to try to stop fraud happening in the first place, but criminals are exploiting weaknesses outside of banks’ control to trick customers into making payments directly to them”

“Banks invest billions of pounds into tackling economic crime, but we cannot stop it on our own,” she said. “Very often, [social media] accounts are used for advertising for ‘money mules’ for the purposes of money laundering, selling stolen identity and credit card data, phishing, bogus investment scams and impersonation fraud.”

Boden argued that banks “seem to have become the underwriter of all kinds of fraud that are not really financial fraud at all”.

APP fraud is a growing problem as fraudsters attempt to work around strong security technology. By tricking victims into authorising payments, security systems are avoided. According to banking trade body UK Finance, there was a 71% increase in APP fraud in the first six months of this year, reaching a value of £355m.

Katy Worobec, managing director of economic crime at UK Finance, said its latest figures showed the sheer scale of fraud taking place in the UK and highlighted the need for coordinated action to address this threat.

“The banking and finance industry invests billions in advanced systems to try to stop fraud happening in the first place, but criminals are exploiting weaknesses outside of banks’ control to trick customers into making payments directly to them,” she said. “This is why we are calling for coordinated action and increased efforts from government and other sectors to tackle what is now a national security threat.”