Payer beware! Standard of Care or Reasonable Basis for Belief?

It is a sad fact that there is always someone out their looking for opportunities to scam those who (we hope) less savvy than us. With the increase in online payments, it didn't take long for fraudsters to seize the initiative and get consumers to part with their cash. As the public have become more wary, the scammers have themselves got more sophisticated. And so the Authorised Push Payment ("APP") scam was born. An APP scam is where a person is tricked into sending money to a fraudster posing as a genuine payee. The fall into two main categories:

• malicious payee -  for example tricking someone into purchasing goods which don’t exist or are never received; and
• malicious redirection - for example a fraudster impersonates bank staff to get someone to transfer funds out of their bank account and into that of a fraudster.

 As a result, the Contingent Reimbursement Model Code (the "CRM") was launched in 2019 to reduce the impacts of APP scams on consumers, micro-enterprises and small charities. Under the CRM, signatories put in place measures to reduce APP scams and to reimburse customers who fall victim to such scams where the customer was not to blame for the success of the scam. So, all good for the unwitting customers caught out by professional scammers? Well, not quite.

An initial review undertaken in 2019 indicated concerns around refused reimbursements, the effectiveness of warnings, the identification of customer vulnerability and record keeping.

On 16 June 2021, the Lending Standards Board ("LSB") published its follow up report to see how things stand now, with the specific focus on whether a firm's investigation into a claim concluded that the customer had met the reasonable basis for belief that the transaction had been genuine or not. To be honest, the results weren't great. While firms have faced a number of challenges over the past year, the LSB concluded that that was no excuse for the lack of improvement in some of the firms. Firms have been setting the standard for customer behaviour in the face of a scam high and therefore it comes as no surprise to learn that making a successful claim was difficult when faced with "excessive and unreasonable" knowledge and checks requirements.

The report reminds firms of the need to be realistic in their expectations of what constitutes ‘reasonable’ when understanding the steps that the customer took to assure themselves that they were dealing with a genuine third party. They should question whether any element of social engineering has occurred given the circumstances of the scam and the customer. Most importantly, the report confirms that customers do not need to meet a "standard of care" test, which requires customers to meet a set of standards before being reimbursed. The correct test is that of the reasonable basis for belief which requires an individual case by case assessment. Firms will need to spend more cost and resource is required from firms to deal with refund requests and in the never-ending quest to educate customers and thwart the fraudsters.