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TSB Questions the Exclusion Rate of the PSR’s Proposed Fraud Refund Mechanism

Proposed reforms to the Payment Systems Regulator‘s (PSR) refund mechanism could exclude a quarter of fraud victims; warns TSB.

Retail bank TSB warns that PSR proposals for a new refund mechanism could prevent fraud victims from being refunded. It estimates that as much as 25 per cent of victims could be excluded under the terms of the update.

This is due to the regulator’s intention to exclude refunds to victims of sub-£100 cases. This would ensure that the cases of authorised push payment (APP) fraud where funds aren’t returned to the victim increase.

However, the PSR has recently outlined plans to publish data on how well firms are protecting customers against APP scams.

By monetary value, cases under £100 account for around one per cent of overall fraud losses. Yet this equates to a projected £5million stolen from UK households every year on current fraud rates.

TSB is also calling on the regulator to scrap proposals for a £35 excess fee per claim. This concerns the excess would disproportionately impact financially vulnerable people amid a cost-of-living crisis.

Fraud cases under the £100 threshold

According to TBS’s data, purchase fraud accounts for 44 per cent of all sub-£100 fraud cases.

Purchase fraud remains a key driver of fraud across the industry and accounts for two-thirds of all bank transfer cases at TSB.

Alarmingly, 11 per cent of cases under the £100 threshold are victims of Advanced Fee Fraud. This type of fraud sees victims being exploited through fees when trying to access non-existent loans. It is also recognised as highly targeting the most financially vulnerable.

TSB found that younger people would be disproportionately affected by the £100 threshold. Fifty-two per cent of victims within this category are aged 20 to 40. Over one in six victims of sub-£100 fraud are over 60.

Social media scams

TSB warns that if a £100 threshold is applied, it would exclude a significant number of consumers who have fallen victim to social media sites, where scams remain rife.

For example, Meta-owned platforms account for four-fifths of all purchase fraud experienced by TSB. This includes popular sites Instagram, WhatsApp and Facebook. This is while UK Finance data confirms that 70 per cent of all push-payment fraud starts on online platforms.

With the demonstrated popularity of these sites alongside their evident vulnerability, TSB calls into question the relevancy of the regulator’s proposed reforms.

PSR consultation and industry refund rate

Although largely welcoming proposals, TSB has advised PSR to reverse the £100 threshold and the corresponding £35 excess fee as part of its consultation. This would ensure that every victim’s needs are met under its scope.

The reforms are expected to upend the future of fraud protection in the UK, as well as home fraud is mitigated.

The regulator aims to drastically improve the industry refund rate, which currently sits at 56 per cent of losses, under the industry code. In comparison, TSB refunds 98 per cent of fraud cases under its Fraud Refund Guarantee which it introduced in 2019.

“We welcome these moves by government and regulators to increase customer protection from fraud,” comments Paul Davis, director of fraud prevention at TSB.

“However, many people simply cannot afford to lose £100 to fraud, especially in the current economic climate. Consumers deserve to be protected from increasingly complex scams that often take place on social media sites,” concludes David.

Author

  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

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