Home Affairs CommitteeWritten evidence submitted by Financial Fraud Action UK [EC 15]

I write in relation to the Home Affairs Committee Inquiry on e-crime and, in particular, the evidence given by Professor Ross Anderson at your hearing on 20 December 2012. We are concerned over the accuracy of several of Professor Anderson’s comments and would like the chance to put a more informed view before your Committee’s members.

Financial Fraud Action UK is the name under which the financial services industry across the UK co-ordinates its activity on fraud prevention. FFA UK works in partnership with The UK Cards Association which represents credit cards, debit cards and charge cards in the UK. Its members are the leading retail banks and financial institutions in the UK who issue payment cards and extend credit to their customers (the card issuers), and those who process card transactions on behalf of merchants (the merchant acquirers).

During the hearing, Professor Anderson suggested that:

“ ... banks often find it easy to blame their customers for fraud... The banks certainly claim that they will blame people if there was gross negligence. In practice, they often blame people as a routine matter, even when it is not clear there was negligence at all.”

The position of the banks is, and always has been, very clear. The innocent victims of fraud can expect to receive full protection against any losses—provided in the form of a full and timely refund, While both banks and cardholders share responsibility for the security of the card, it is only in circumstances where customers have been grossly negligent in protecting their PIN and card that they sustain any loss—which is a high threshold to overcome. Processes embedded by the banks ensure that all customers who are genuine victims of fraud will be refunded and will suffer no loss with the burden of proof on the bank to demonstrate otherwise, The cross-industry picture is that 98% of cases are resolved with a full refund being delivered for the customer. The remaining 2% is made up of a combination of the following scenarios: firstly, fraudulent claims, and secondly where the customer has been found to have acted with such gross negligence as to have practically colluded with the fraudster.

Banks are required to refund the victims of fraud immediately and, as a recent Which? study clearly showed, the vast majority are refunded within a week. On the rare occasions when the situation is not clear cut and the bank needs to investigate further, most card companies ensure that the available balance and interest payments are unaffected whilst the transaction is investigated, which provides support and respite to customers.

The regulatory framework is overseen by the Financial Services Authority, while cardholders have recourse to appeal the decisions of banks to the Financial Ombudsman Service (FOS). All are able to use this additional route to redress where they are unsatisfied with any decision.

While we are confident in the processes in place, we are always open to representations from FOS, where the organisation feels there are systemic industry-wide issues that require extra attention. To this end, we are hoping to meet with the Chief Ombudsman later this year.

Professor Anderson cast doubt, as part of his evidence, on the banks’ observance of the Payment Services Regulations 2009, but the figures set out above make clear that the proportion of customers receiving prompt redress is overwhelming. This is backed by research into the customer experience when it comes to fraud refunds: According to an independent study conducted by Accenture in 2012, less than 10% of respondents rated the service from their banks as anything less than good or excellent.

I would be delighted to give you a more in-depth briefing on FFA UK and the impact we have had. If you would find this helpful, I will ask my office to contact your team and arrange a suitable time.

Katy Worobec
Head of Fraud Control
Financial Fraud Action UK

February 2013

Prepared 29th July 2013