Update on the improvement of protection for consumers
When payments are made or received by businesses or individuals there are usually three types of things that may go wrong:
- A mistaken payment may be made because of an accidental error
- An unauthorised payment may be made because of theft, hacking, or other form of fraud and the payer’s credentials are used without their knowledge
- An authorised push payment (APP) may be made willing because the payer has been tricked or scammed.
As the use of bank transfers and digital transactions has escalated, so has the occurrence of mistaken and fraudulent payments. On 7 October 2024 new options came into force for recovering some of these wrongful payments.
The cost of wrong payments
Whilst misdirecting or misapplying a payment is very stressful and potentially costly, the biggest cost to individuals and businesses in the UK is from the two other types of wrongful payments, both ultimately generated through fraud. According to the latest figures from the industry trade body, UK Finance, at least £1.17 billion was stolen through these types of fraud in 2023. Of this, APP accounted for at least £459.7 million[1].
Remedies for mistaken payments
We have written previously about how the UK law treats mistaken payments, including when and how it allows these to be recovered, and instances when a recipient may be allowed to keep the money: Banking security: recovering wrong payments .
At that time the UK’s largest banks adhered to a voluntary code for the reimbursement of losses caused by mistaken and fraudulent payments. Although the banks had discretion to refuse reimbursement if a customer ignored a negative validation of the account name before payment, known as “Confirmation of Payee” (CoP), this service aimed to reduce APP fraud and accidentally misdirected payments. The Payment Systems Regulator has now directed almost all payment service providers, using Faster Payments and CHAPS, to offer CoP for all individual and business customers by 31 October 2024.
Addressing APP Fraud
Account name verification may prevent some APP fraud, but government and industry recognised that further measures were needed to meet the ever-changing digital payment landscape. Therefore, to better protect consumers, on 7 October 2024 new industry-wide rules come into force giving banks new powers to both delay and investigate payments that are suspected of being fraudulent. Victims of fraud must be reimbursed by banks within five business days.
Details of the new protections can be found on the Payment Systems Regulator website.
These protections apply:
- To all types of payment firms including banks, building societies and savings providers.
- To individuals, microenterprises, and charities.
- To transfers within the UK, from one UK account to another, using Faster Payments or CHAPS[2]
- To a maximum claim of £85,000.
- Unless a consumer is found to be complicit or grossly negligent – ignoring a negative CoP result does not preclude the protection, but the reasonableness of not heading a warning will need to be established.
These protections do not apply to unauthorised payment fraud, or to situations where you are simply in dispute about paying for goods or services. In these situations, other laws and consumer protections apply.
Remedies for businesses
As these new payment protection rules only apply to consumers (not acting in the course of their business), smaller charities (under £1 million annual income), and businesses (with fewer than 10 people and turnover under £2 million), other businesses should continue being vigilant in order to avoid APP fraud. We recommended various types of precautions to avoid impersonation scams and deepfakes in our article Operating incognito: how businesses should respond to the threat of deepfakes
Implementing verification procedures is vital for businesses to avoid falling victim to fraud. This may include checking payment details before making any financial transaction, and always use the Confirmation of Payee account verification service that all banks should be providing.
If you wish to discuss any of these issues, please contact Nathan Talbott, head of our Commercial Litigation team specialising in commercial and contractual disputes, including those relating to complex financial and tax matters.
[1] UK Finance Annual Fraud Report 2024
[2] While there are many examples of APP fraud to accounts outside of the UK, according to UK Finance, these accounted for less than 2% of fraudulent APP scam payments in 2023, and for less than 6% of the total value. UK Finance: Annual Fraud Report 2024
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
The information published across our Knowledge Base is correct at the time of going to press.
