Fraud payouts are set to be capped at £85,000 after regulators scaled back on plans to raise the limit following a backlash from banks and politicians.
The Payment Systems Regulator (PSR) said last year that scam victims falling foul of bogus “authorised push payments” would be reimbursed by up to £415,000 per claim.
The new rules were due to come into force from October, but the maximum fraud payment is to be significantly reduced following strong pressure from ministers, lenders and banks.
Treasury officials are understood to have called the planned £415,000 limit a “disaster waiting to happen”, paving the way for smaller fintech firms to go out of business.
More than 30 firms reportedly signed a letter to the economic secretary, Bim Afolami, in June asking for the changes to be paused.
Consumer groups, however, have urged for the rules to come into effect as a way of offering “vital” protection to fraud victims.
Authorised push payments (APPs) involve individuals being convinced to willingly send money from their bank account to the scammer. The manipulation often revolves around romance and purchase scams, such as when fake tickets for concerts are sold.
Last year alone, tricked customers transferred £460m to scammers.
Banks currently reimburse customers on a voluntary basis and are not tied into clear cut regulation.
Monzo and Danske Bank fully refunded scammed customers in less than 10pc of reported APP cases, while others such as Nationwide and TSB fully reimbursed lost funds in more than 95pc of cases, latest fraud payout figures show.
The PSR hoped a forced maximum payout of £415,000 would “prevent APP fraud from happening in the first place while ensuring victims are protected in a consistent way”.
Under the new rules, unless a victim ignores warning messages from their bank, fails to promptly notify their bank of the fraud, refuses to share information about the fraud with the payment provider or refuses to share details with the police, they will be entitled to a refund of the money they lost.
The PSR did concede earlier this year that the payout plan had “attracted a particularly high level of feedback” and the planned limit could be revised before October.
This is due to be the case today, when the regulator published a report detailing changes to the threshold.
An expected reduction to £85,000 brings the limit in line with the financial services compensation scheme (FSCS) which protects savers deposits in individual banks and building societies should they go under.
Rocio Concha from the consumer group Which? said scaling back the payout limit is “outrageous”.
She said: “It’s outrageous that the payments regulator is set to water down vital scam protections weeks before they were due to take effect and that this move follows months of lobbying from firms that refuse to take fraud seriously.
“Slashing the reimbursement limit risks exposing victims of the highest value scams to devastating financial and emotional harm and also significantly reduces crucial financial incentives for payments firms to put in place effective fraud security measures.”
Proposals over the APP reimbursement limit come as the regulator plans to hand banks new powers to freeze payments for up to four days.
Currently, “authorised” payments – ones that have been approved by the customer – can only be held for 24 hours while banks investigate.
The legislation, first proposed by the Conservatives and backed by Labour in January, will be pushed through Parliament this autumn.
It will give payment service providers a further 72 hours to investigate payments, but only where there are reasonable grounds to suspect fraud or dishonesty that could be out of the ordinary from a customer’s regular financial activity.
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