Scamdemic – APP fraud on the rise

Authorised push payment (APP) fraud has dramatically risen over the course of the pandemic. In this article we discuss why APP fraud has increased and what to do if you are a victim of an APP scam.

For the best part of two years the world has seen an incredible change to the way we work. The Covid-19 pandemic forced the general public and businesses alike to move their working lives and even partially their personal lives online. The inability to attend things in person led to a heavy reliance upon platforms for e-commerce, Zoom, Microsoft Teams and various other online meeting platforms. Fraudsters capitalised on this shift, exploited the pandemic and have infected our systems by targeting victims online. You might even recognise some of these scams yourself; there has been a vaccination scam via text and fraudsters have posed as HMRC threatening to file a lawsuit against you unless a payment is made. There have also been scams purporting to be various parcel delivery companies asking you to pay for redelivery and, if you are expecting a parcel delivery it is easy to fall into the trap. All of these, and many others, are examples of “authorised push payments” and have seen the greatest increase of scams over the course of the pandemic leading to a total loss of £207.8 million in the first half of 2020.

APP scams rely on manipulative techniques known as “social engineering” to trick an individual or business into willing parting with the contents of their bank account rather than for example, having money stolen from their bank account. This means that the payment is authorised by the customer in other words, the customer instructed the bank to make a payment and knew that money was leaving their account. The difficulty with these scams is that the money will arrive in the criminal’s account and will often be quickly transferred into other accounts which are likely to be abroad. This makes tracing and recovering the money difficult. If you are an individual, you will have suffered a potentially considerable personal loss. If a business is the victim to fraud this not only leads to a monetary loss but can cause further complications with commercial relationships such as, owing a debt to a supplier and impacting the trust and confidence of the relationship.

If you fall victim to one of these scams understandably your first point of call is likely to be your bank. You would perhaps have an expectation that your bank can reimburse the money lost if it is too late to stop the payment. However, the nature of the scam and the method of payment can often dictate whether your bank does in fact, have a duty of care and whether they are required to refund the money. APP fraud creates some complications as regards the bank’s duty of care and your ability to get your money back due to the payment being authorised by you, the customer.

In a recent case, Philipp v Barclays Bank, the claimant was the victim of an APP scheme. The fraudsters convinced her that she was assisting an FCA and National Crime Agency investigation. She personally attended two different branches of the bank and instructed them to make payments to the fraudsters which across the two tranches totalled £700,000. The claimant issued proceedings against Barclays to recover damages for her loss. She claimed that the bank had a duty of care as it was on inquiry as to the potential fraud and should have had policies and procedures in place to detect APP fraud and that it had breached this duty of care therefore, causing her loss.

The bank accepted that it had a duty to act in accordance with the claimant’s instructions and to use reasonable care and skill in executing those instructions. This duty is known as the Quincecare duty and was established in Barclays Bank V Quincecare Limited and the bank argued that the duty should not be extended to protect a customer from the consequences of their own decisions where their instructions are valid and not fraudulently given.

The High Court held that the Quincecare duty could not be elevated to such extent which would be excessively burdensome, and which would prevent them from carrying out effective banking transactions.

What are your options?

Absent a remedy in the courts there are some other options open to victims of APP fraud.

In May 2019 the Contingent Reimbursement Model Code came into force. This is a voluntary scheme which a number of major banks have signed up for which aims to establish better protection for customers who fall victim to APP fraud. The code allows customers to be reimbursed in some cases even where they themselves have authorised the payment the exception being where there is gross negligence by the customer.

Another remedy is to take your matter to the Financial Ombudsman. While the courts are not extending the Quincecare duty to individuals subject to APP fraud the Financial Ombudsman has made multiple rulings in favour of the customer on the basis of this duty.

If you have found yourself victim to APP fraud or your business is party to a potential APP claim and you need advice or assistance then please contact us.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

Edward Jones
Legal Director, Dispute Resolution
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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