Scamdemic: Many worthy fraud compensation claims denied by banks
November 19, 2021
3 min read
What's going on here?
Consumer watchdog “Which?” has reported that 75% of fraud compensation claims rejected by banks should have been accepted.
What does this mean?
Which? claims that victims asking for compensation for their losses resulting from fraud are facing a “reimbursement lottery”, termed as such since many worthy claims are being unfairly denied. Whilst the rejection rate for merited claims generally stands at 75%, as noted above, this rate is even higher among particular banking groups. For example, NatWest and Royal Bank of Scotland rejected eight in ten deserving claims.
Evidence of a “reimbursement lottery” and unfair treatment of customer complaints has led to Which? calling on banks to take action and responsibility in many ways. One request is that a mandatory requirement is placed on banks to protect customers in a consistent manner, with a reimbursement obligation on all firms utilising faster payments. Additionally, greater transparency about firms’ approaches to reimbursement should be introduced, requiring banks to regularly publish data relating to fraud and reimbursement rates.
What's the big picture effect?
Looking at banks’ failures in reimbursing fraud leads us to consider tackling fraud more generally, especially in the context of a modern, digital era. Covid-19 has arguably brought fraud to the forefront of our discourse: the pandemic has given scammers opportunities to exploit Covid-related messages, especially through fake delivery texts as more people have shopped online. The number of complaints to the Financial Ombudsman Service involving authorised fraud more than doubled (from 3,600 to 7,770) in 2020-21. This figure seems to confirm commentators’ concerns that the real issue is not substantive fraud law (seemingly “updated” and “simplified” by the Fraud Act 2006), but instead with identifying and prosecuting fraud in practice, further complicated by the greater and increasingly diverse opportunities for fraud created by technology.
“A digital real-time world also means real-time fraud” (a statement by Davinder Oberoi, an expert on consumer data rights in banking). Along with the evolution of technology comes an evolution in fraud methods: our own vulnerability is heightened by our lack of understanding of the risks posed by unfamiliar technology and the new technology itself can be unfit for dealing with fraud. In stark comparison to traditional real-world frauds (such as using counterfeit money or false identities to open bank accounts) that could be personally risky (so often only undertaken if the rewards were worthwhile), fraud in the digital era can be undertaken in vast numbers as fraudsters can afford for the majority of their attempts to fail. From all this we can conclude that firms and organisations must take a proactive rather than reactive approach to tackling fraud. This would be implemented in practice by a better understanding of the unfamiliar risks any new technology poses and constant introduction of systems that address said new or unfamiliar risks. As sectors and firms begin to understand these latest risks, information should be disseminated on a larger scale to the general public, hoping to decrease vulnerability and obliviousness at the individual level.
An additional key issue is that merchants may be designing their digital services primarily with convenience in mind, with security merely an afterthought, which could worryingly lead to increased fraud. According to Lost in Transaction data, 71% of merchants globally acknowledge fraud as a serious issue, yet 36% are concerned that introducing more robust security will deter customers. Resultantly, we may fear that there has been an increased public acceptance of fraud as simply a fact of life – security can be legitimately compromised by the demand for convenience. If this is true, then the onus should be on large companies to develop heightened security mechanisms that are less irritating or disruptive for consumers.
Report written by Lauren Ainscough
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