What you need to know about the new APP Fraud Mandatory Reimbursement Scheme

APP fraud occurs when a consumer is deceived into authorising a transaction to a fraudster.  Under the new scheme, UK PSPs (i.e. including banks) must reimburse consumers, microenterprises, and charities within five business days of receiving an APP fraud claim. This reimbursement is capped at £85,000, in line with the Financial Services Compensation Scheme.  This is a significant reduction from the previous cap of £415,000 under the CRM code. Despite the reduced limit, the PSR believes that it will cover over 99% of claims.

The scheme applies exclusively to payments made within the jurisdiction and is limited to Faster Payments and retail CHAPS payments, excluding international transactions and any other payments or claims related to civil disputes.

Claims must be submitted within 13 months following the last related payment. Unlike the CRM code, the fraudulent losses will be shared equally between the sending and receiving PSPs rather than just the sending bank. The receiving PSP is required to reimburse the sending PSP 50% of the reimbursable amount within five business days of notification.

However, the sending PSP may exercise a ‘stop the clock’ provision, allowing it to pause the five business-day reimbursement timeframe to request further information and investigate the claim with a maximum pause of 35 working days. The reimbursement timeframe is paused at the point where the sending PSP submits its request for information.

There is also a voluntary excess of £100 that a consumer agrees to cover themselves for any loss incurred due to APP fraud.

Vulnerable consumers, defined as individuals who are particularly susceptible to harm due to their personal circumstances—especially when a firm fails to exercise appropriate levels of care—are exempt from the standard caution requirement and will not be subject to the excess.

To make a reimbursement claim, you should promptly report the suspected fraud to your bank and provide any information which may be of assistance.  You should check with your bank how you can submit your claim.

The bank will investigate your claim and inform you of their decision within a specified timeframe. Decisions as to the reimbursement are taken exclusively by the sending PSP. The burden of proof falls on the PSP to show that the consumer has acted with gross negligence.

A PSP can deny a reimbursement claim where:

1. The customer has acted fraudulently, or
2. The customer has acted with gross negligence, which the PSR says means a significant degree of carelessness outside the minimum standard of consumer caution.

The PSR has suggested that customers adhere to a specific standard of care regarding Authorised Push Payments and has issued guidance on this matter. This standard is considered higher than the general negligence standard under common law, meaning a consumer must demonstrate a high degree of carelessness to be deemed ineligible for reimbursement. Therefore, customers should:

1. Pay attention to any warnings your bank gives you;
2. Promptly inform your bank if you suspect you have been the victim of a scam;
3. Provide relevant information to assist the bank in evaluating the claim; and
4. Consent to the reporting of fraud details to the police.

If your bank has refused to reimburse you for a fraudulent transaction, it is essential to understand your options and the complaint process with the Financial Ombudsman Service (“FOS”).

The main recourse is to file a formal complaint with the FOS. While the maximum compensation has been reduced to £85,000 rather than the previous £415,000, obtaining appropriate legal advice is crucial, and can significantly improve your chances of a successful outcome.

A lawyer will be well-versed in the complaints process and can present your case in the best possible way. They may also undertake further investigative steps such as conducting a Data Subject Access Request (DSAR) to obtain important details from the bank regarding the transaction and its internal handling. This information will help form the basis of your complaint along with the documentary evidence and recollection of events.

Once your complaint is submitted, the Ombudsman will review the case and issue an initial decision. If either party is dissatisfied with the decision, they can appeal. The Ombudsman will then refer the case for a thorough review by a senior Ombudsman, whose ruling is final.

If the decision is favourable, you can accept it, making it binding and enforceable. If you choose to reject it, you have the option of taking further action, although this may be limited, especially in light of recent legal precedents, such as Philipp v Barclays.

In conclusion, the introduction of the mandatory Authorised Push Payment fraud reimbursement scheme marks a significant shift in consumer protection within the UK financial sector. By requiring payment service providers to quickly reimburse victims and protect vulnerable customers, the scheme aims to enhance security against APP fraud and encourage efforts to reduce it.

As consumers adapt to this framework, understanding their rights and seeking legal support is crucial for receiving the necessary protection and reimbursement. Although the process can be complex, working with an experienced lawyer can help strengthen your case and improve your chances of a successful resolution through the Ombudsman.

This article was co-authored by Kayleigh Tang and Jack Webb.