Authorised Push Payment (APP) Fraud has continued to be a significant source of concern in the UK, accounting for losses of £341 million in 2023 alone, according to the Payment Systems Regulator's APP Scams Performance Report. In response to the surge in APP fraud cases, a new reimbursement scheme was implemented on 7 October 2024, which provides for mandatory reimbursement (up to a cap of £85,000) for those who fall within the terms of the scheme. We outline below the scope of the new scheme and explore alternative routes of recovery for those who may fall outside its scope, as well as considering the wider expected benefits resulting from the developing legal landscape. Whatever the route of recovery, it is crucial that victims act quickly, to maximise their chances of recovering their assets.
The mandatory reimbursement scheme
The introduction of the mandatory reimbursement scheme marks a significant step forward in protecting consumers. Although a voluntary reimbursement scheme was previously in place, not all Payment Service Providers (PSPs) had signed up to it. The scheme is applicable to individuals, microenterprises (those employing fewer than ten people with an annual turnover or balance sheet of EUR2 million or less), and smaller charities (with an annual income of less than £1 million). The scheme applies to payments made from one UK bank account to another via CHAPs or the Faster Payment System. It does not apply to payments made to accounts overseas. Victims must report the fraud within 13 months from the date of the last fraudulent payment to qualify for reimbursement. Where the loss exceeds the £85,000 cap, PSPs can choose to voluntarily reimburse the excess but are not obligated to do so.
Consumers will not be eligible for reimbursement if they were complicit in the fraud or were grossly negligent – the latter is referred to as the Consumer Standard of Caution Exception. This requires consumers to have regard to any interventions by their bank or a national authority, to report the fraud promptly, to respond to any reasonable and proportionate requests for information and to report the fraud to the police (or consent to the PSP reporting it). It is for the PSP to demonstrate that the consumer acted with gross negligence, failing to comply with one or more stated consumer standards of caution.
Financial Ombudsman Service
If a customer is not satisfied with their bank's response, they can take their case to the Financial Ombudsman Service (FOS). The FOS can investigate how the bank dealt with the issue and can ultimately require the bank to reimburse the victim if warranted, up to a maximum limit of £430,000 (with the ability to recommend but not require additional amounts to be paid above this limit).
Claim against the banks
Where victims fall outside the scope of the mandatory reimbursement scheme, they may wish to explore potential claims against the bank – either their own bank or the receiving bank to which the payment was sent. Recent developments in case law have explored the avenues for victims seeking redress but these claims remain challenging.
Two cases in particular, CCP Graduate School Limited v (1) National Westminster Bank PLC & (2) Santander UK Plc [2024] EWHC 581 (KB) and Terna Energy Trading doo v Revolut Limited [2024] EWHC 1419 (Comm), have considered these issues. The claim in CCP Graduate argued that the bank owed a "retrieval duty" – that once on notice of a suspected fraud, the bank is under a duty to take reasonable steps to recover the monies paid out as a result of the APP fraud. In Terna Energy Trading, the Claimant argued that the bank which held the account into which the monies had been paid had been unjustly enriched. In both cases, the court concluded that the claim was at least arguable and dismissed applications for summary judgment/strike out, therefore allowing the cases to proceed to trial. However, both decisions are being appealed.
It remains to be seen how the courts will ultimately determine these claims but the arguments are not without their challenges.
Claim against the fraudster: Norwich Pharmacal orders and freezing orders
With this lingering uncertainty, where a claim falls outside the remit of the mandatory reimbursement scheme, or where the victim may not meet the Consumer Standard of Caution, it remains critical for victims to act quickly and to consider other avenues. These may include taking steps to seek to locate and freeze the stolen funds before the fraudster moves them out of the jurisdiction. This may involve making an application for a Norwich Pharmacal Order against the PSP, compelling them to disclose information that may identify the fraudster or reveal the location of the funds.
If the stolen funds can be identified and located, victims may then be able to seek a freezing order to prevent the fraudster from dissipating the assets. In the context of APP fraud, such an order can serve as a crucial tool to freeze the assets linked to the fraud, and to improve the chances of recovering the victim's funds. The ability to take swift legal action is invaluable, as fraudsters will inevitably seek to move the monies outside of the jurisdiction as quickly as possible.
Enhanced fraud protection systems
As well as providing direct routes for recovery of lost funds, the developing landscape is expected to deliver other benefits to customers in the form of enhanced fraud protection systems, and greater collaboration between sending and receiving banks. A key part of the rationale behind the introduction of the mandatory reimbursement scheme was to incentivise PSPs to prevent these frauds from happening in the first place. The Payment Systems Regulator has stated that it expects the new reimbursement requirement to lead firms to innovate and develop effective, data-driven interventions, and to adopt a risk-based approach to payments, with firms making better decisions on when to intervene and hold or stop a payment. This is reinforced by complementary new measures, such as the ability for banks to delay transfers for up to four days to investigate suspicious transactions.
The extent of this wider impact is expected to become clearer over the coming months as the mandatory reimbursement scheme 'beds in' and we see how it is implemented in practice, how the consumer standard of caution exception is applied and whether and to what extent banks elect to reimburse losses that exceed the mandatory cap. We will also begin to see the extent to which banks employ the new measures to delay transfers where fraud is suspected. As ever, there remains a balance to be struck between protecting customers and delivering the fast, efficient and frictionless payment system that customers have come to expect.
As we wait to see the full impact of these measures as the landscape evolves, it is imperative for customers to remain alert and proactive, ensuring that advancements in banking practices work hand in hand with informed consumer action to create a more resilient defence against fraud.