Australia’s big banks are fighting a push from regulators to force them to refund billions of dollars lost by consumers to online scams, arguing that requirements to endure the costs of online fraud could instigate complacency among consumers and lead to even more losses. Attwood Marshall Lawyers Commercial Litigation Associate Georgia Taylor discusses the potential impact of the proposed changes.
Background
The Australian Competition and Consumer Commission (ACCC) has called on central banks to update their processes to stop customers from transferring money to fraudsters after accusations that the financial sector were ‘victim blaming’ to avoid responsibility for scam losses.
Australian banks in many cases do not block transactions where the name listed by the sender does not match the recipient’s account details.
The Australian Securities and Investments Commission (ASIC) has proposed new obligations “to prevent scams or reimburse customers for losses,” and the banks are strongly opposed.
Financial scams have increased worldwide during COVID-19, with consumers spending more money online during lockdowns and criminals exploiting security vulnerabilities within both personal finances and direct attacks on businesses who have moved into the online sector in a greater capacity.
ASIC is currently evaluating the ePayments code, a voluntary code of practice accepted by financial institutions that contain consumer protections for electronic payments, however, the revaluation process has been plagued with delay.
The ACCC pushed ASIC to include scam prevention as part of its review of the ePayment code in 2020. Still, ASIC ultimately decided against this after fierce pushback from the central banks.
Overall, ASIC’s interregnum stance has allowed the industry to develop its policies for scam prevention and to monitor the efficacy of the UK approach, with the perspective to enforce new rules if progress is inadequate. ASIC’s final position is set to be released in the first half of 2022, three years after it began with no doubt millions of dollars lost by consumers with little recourse as a result of the delay.
Australia’s central banks provide a system called PayID, which enables customers to transfer money via a mobile number or email address rather than using BSB and account numbers. This system alerts senders that an ID mismatch occurs but is only available when transferring smaller sums and accessible through internet banking. ASIC said it would monitor the system’s roll-out, albeit slowly, to address fraud concerns.
The rapid rise in scams
Financial scams have increased worldwide during the COVID-19 pandemic, with consumers spending more money online during lockdowns and criminals exploiting the increased spending in this vulnerable space.
Unfortunately, while online payment systems have innovated over the last two decades, the ACCC has reported scam losses of more than $850m in 2021. In September 2021, it was reported that an 89 per cent increase in scam losses had occurred. The ACCC states that these losses are just a fraction of the cumulative losses incurred by Australians. This year’s losses are likely to exceed $1 billion, which not only affects individuals and families who are scammed out of their hard-earned money but also represents a significant impact on our economy.
Anna Bligh, Chief Executive Officer at the ABA, remarked that with all the benefits of dependence on digital platforms during the pandemic, one negative aspect had been the rapid increase in sophisticated scams.
Scammers don’t focus on one group over another, and they target people of all backgrounds and socioeconomic standing throughout Australia. Scams succeed because they resemble real or practical occurrences and catch you off guard when you are not expecting them. Many people can no longer tell the difference between a scam and a legitimate company or piece of communication, particularly via email.
Australian Banking Association (ABA) research shows that 66 per cent of Australians evade a potential scam every week and 29 per cent of Australians report evading a scam every day.
For the first eight months of 2021, ANZ had seen a 73 per cent increase in scams being detected or reported by customers, compared to the same time the previous year.
New protections for consumers affected by scams in the UK
The UK regulator recently introduced new protections for consumers affected by scams, including increased liability on banks to reimburse customers who lose money. As well as a “confirmation of payee” (CoP) implementation that forces banks to tag payments where the account name doesn’t match the BSB and account number.
A recent review of this arrangement found that they successfully reimbursed people for losses caused by a scam. The UK Lending Standards Board reported that pre-Code remuneration rates were as low as 19 per cent by value.
Taking into consideration this positive impact, the UK Payment Systems Regulator proposes strengthening and mandating the code for all banks. Once implemented, this will enhance confidence in users of payment systems that compensation will be provided if they incur scam losses through no fault of their own.
We need to embed similar arrangements in payment systems such as crypto exchanges, in Australia, covering both banks and innovations. Without such reforms, consumers have limited means of raising a complaint and pursuing remedies against a bank that has been refractory in preventing scams or failed to take reasonable steps to recover scam losses.
Australian Institute of Conveyancers National Secretary Dion Dosualdo has stated that this was designed to reduce fraud, and the Australian banking sector’s refusal to implement a similar system meant it was complicit.
Both the ACCC and the Consumers’ Federation of Australia (CFA) supported the introduction of a name-checking tool in Australia. They claim it would address an increasingly prevalent style of scam known as business email compromise, where hackers falsify invoices to request payment to fraudulent accounts using real business names.
Scams – who is liable?
The standard policy reverberation to the risk of scam losses is to educate the consumer. However, education is unlikely to mitigate scam losses because scammers are furthering their sophistication in meeting the education of consumers. We need to examine the role of banks and firms operating in the payment system space. The proposal to regulate crypto exchanges more akin to banks also represents an opportunity. After all, banks and the operators of crypto exchanges are better positioned than individuals to recognise scams and take action to safeguard losses.
For some types of scams, the banks are already culpable. In the circumstance of a scammer directly accessing a bank customer’s account or card to initiate transactions (such as counterfeit/skimming fraud, fraud on lost and stolen cards, and card not present fraud) consumers do not bear the losses. Given that banks bear liability, they have an incentive to take steps to reduce losses.
However, for scams where a customer authorises a payment to another bank account that turns out to be fraudulent, the consumer is very unlikely to obtain reimbursement. Even if the consumer has taken steps to protect themselves, this is the case. While banks take various steps to recover funds when consumers report such scam losses, systematic bank fraud prevention efforts appear to guard against unauthorised access to accounts, where banks face liability for failed systems.
Regulatory change could give the banks more incentive to detect and prevent growing consumer losses. Banks are in a much better position to improve their systems to safeguard customers,
What effects would the proposed new obligations have on bank liability?
If ASIC were to enforce the new proposed regulations, which follow what has been implemented in the UK, this would significantly impact the big banks.
The immediate changes would include:
- Publication of fraud data by banks: Banking groups would have to publish data on their performance concerning scams, on reimbursement levels for victims, and which banks and accounts are being used to receive the fraudulent funds.
- Improve scam prevention: Industry will improve intelligence sharing to enhance detection and prevention of scams.
- Reimbursing victims: Developing how best to make reimbursement mandatory to victims of APP scams once legislative changes have been made.
ASIC would also instigate making reimbursement mandatory for blameless victims so that, when the law is changed, actions can take place as quickly as possible to get protections for the people who need them.
Attwood Marshall Lawyers – helping you resolve disputes effectively and recover financial loss
To advocate community trust and confidence in payments, there needs to be a greater focus on protecting Australians from ballooning scam losses.
If you are entangled in a dispute with your bank over scam liability, our team can ensure you understand your rights and guide you in resolving the matter as quickly and efficiently as possible.
Our accomplished Commercial Litigation lawyers can help determine if you may be eligible for compensation for any financial loss you have suffered. In some circumstances, we can accept your case on a “No Win, No Fee” basis* (approved cases only where a veritable financial hardship exists and claims have a reasonable expectation of success).
To find out your likelihood of successfully claiming compensation for losses you have suffered, please contact Commercial Litigation Department Manager, Amanda Heather, on direct line 07 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071 at any time.
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