A wave of bank customers are winning huge payouts after battling over refused scam refunds and taking their case to the Financial Ombudsman Service.
It gives hope to those scam victims who see their bank refuse to compensate them, especially those trapped by a loophole that means they lose automatic refund rights if they pay someone who later turns out to be a scammer.
When someone is defrauded unintentionally, for example because their debit or credit card is stolen, they should get a full refund from their bank thanks to UK financial regulations.
But these rules are less clear-cut if the consumer authorised the fraud, for example by willingly transferring money to someone that later turned out to be a scammer.
Refund loophole: Around half of all fraud is authorised, and so not covered by rules ordering banks to repay fraud losses automatically
Most banks have signed a voluntary agreement to repay customers in this situation, known as ‘authorised push payment’ fraud, but the two-tier system still leads to many scam victims never getting their money back.
But hundreds of Britons are taking their fight for fraud refunds to the Financial Ombudsman Service and winning, according to This is Money analysis of FOS decisions.
Last year the FOS sided with 370 consumers in battles with their high street bank or credit card firm, and ordered them to pay refunds. This year has already seen 86 upheld cases.
Many consumers managed to claw back cash ranging from a few hundred pounds to hundreds of thousands.
JP Morgan clone fraud refund of up to £345,750
The FOS ordered Santander to repay £345,750 to a couple who fell victim to an investment fraud by criminals posing as bank firm JP Morgan.
The couple, Mr and Mrs M, made three payments of £100,000, £45,750 and £200,000, tricked by a clone of the real banking giant – and the money went to Malaysia.
On each occasion Santander staff called the couple to carry out fraud checks.
But when the scam came to light, Santander refused to pay a refund, stating that the duo should have done more checks on the JP Morgan imposters before sending any money.
But the FOS ruled that Santander staff did not do enough to prevent the fraud, and that Mr and Mrs M were ‘unwitting and blameless victims of a clever fraudster’.
Astonishingly, Mr and Mrs M managed to convince the scammers to refund some of the cash. But the FOS ordered Santander to repay the rest, up to £345,750, plus £300 as compensation.
A Santander spokesman said: ‘Santander has sophisticated fraud and scam detection and prevention in place to protect customers falling victim to fraud, which can include blocking suspicious payments, and contacting customers to provide scam warnings and confirm transactions are legitimate before authorising payments.
‘When a customer does unfortunately fall victim to fraud, Santander supports customers in understanding what happened as well as attempting to recover lost funds, including refunding customers where appropriate.
‘Customers should always think carefully before sending any money and can find more information on how to spot scams on the Santander website.’
First Direct £50k refund PLUS 8% interest
In another example, a First Direct customer won back £50,000 this year after his bank refused him a refund.
The customer, Mr D, also lost the cash to a 2018 investment scam, with First Direct asking questions about why he wanted to make the large payment.
Again, the FOS ruled that First Direct should have done more to discover if the payment was going to a fraudster, and pointed out that ‘the bank was the professional in financial matters; Mr D was a layperson’.
The ombudsman ordered First Direct to repay the entire £50,000 – plus 8 per cent interest.
A First Direct spokesman said: ‘Protecting customers from scams is an absolute priority for us.
‘While this transaction was made in 2018, before the CRM Code came into effect, it was thoroughly investigated and considered on its own merits.
‘The CRM Code, which we have been a signatory of from the very start, has introduced a significantly different approach, including greater and more targeted customer warnings, and we adhere to the principles of the Code should customers fall victim to scammers.’
Your consumer rights if you lose money to fraud
There are two sorts of fraud – unauthorised and authorised.
Under Payment Services Regulations, banks must refund victims of unauthorised fraud in full, so long as they have not been what the FOS calls ‘grossly negligent’.
If you are refused your money back, you can complain to the FOS.
Call 0800 023 4567 or fill in a form online, which takes around 30 minutes.
If you are a victim of authorised fraud, your refund rights are weaker.
Technically banks can refuse to pay out for this sort of fraud loss.
Most have signed a voluntary code to refund customers of this scam, but only if they have acted ‘appropriately’.
In practice, banks refuse to pay around half of authorised fraud refunds.
TSB has its own refund guarantee, which promises to reimburse all innocent customers.
If you are a victim of authorised fraud, and your bank or credit card firm will not pay out, you can apply to the FOS in the same way as above.
A UK Finance spokesman said: ‘Fraud has a devastating impact on victims and the money stolen funds serious organised crime, so the banking and finance industry’s primary focus is always on stopping fraud from happening in the first place.
‘Since 2019, the APP voluntary code has been in place and hundreds of millions of pounds has been reimbursed to thousands of customers who have fallen victim to fraud.
‘However, reimbursement alone will not solve the problem of fraud. Banks have invested heavily in advanced technology to protect customers, but more needs to be done, so it is vital that we have cross-sector action including from online platforms, to help tackle the threat at source.’
Nationwide bitcoin block meant £300 redress
Banks do face a tough task when trying to strike a balance with fraud detection.
Too many checks and consumers feel under unfair scrutiny, while genuine transactions get blocked or take ages. Too little, and banks risk their customers losing money to scammers.
One example of a bank doing too many fraud checks happened in an April 2023 FOS ruling, when Nationwide Building Society stopped a customer buying £50,000 of the cryptocurrency bitcoin.
Nationwide asked him to come into a branch for an interview, and also got him to sign a disclaimer, with a branch manager calling the transaction ‘super risky’.
But in the end the building society still refused to release the money.
The man argued that the Nationwide decision led to him being worse off, as he was missing out on possible investment gains from bitcoin.
The customer did not want compensation for possible investment losses, but still went to the FOS for compensation.
The FOS ordered Nationwide to pay £300 to compensate the customer for his time.
A Nationwide spokesman said: ‘Nationwide takes a risk based approach to payments in order to balance security with convenience.
‘In cases where a payment is deemed higher risk, such as a payment to buy crypto assets, we may make further checks to ensure we are happy the member isn’t being scammed. We always try and make these checks as quickly as possible.’
