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Money Matters – On Banking Fraud

Paul Lewis

12 February 2021

Paul Lewis is an award-winning financial journalist and broadcaster.

People are losing huge amounts to bank transfer scams. Paul Lewis advises on preventing this fraud.

The fraud epidemic continues. The latest figures show that in the 12 months to June 2020, £456 million was stolen from 131,000 people using a technique called ‘authorised payment’ fraud. Only a third of that money has been returned to those victims by their bank, despite a new code launched in May 2019 which is supposed to ensure that customers who have done nothing wrong are reimbursed in full and promptly.

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This fraud uses psychological techniques to persuade people that their money is at risk and that the person calling them is their only hope of protecting it. They obtain apparently innocuous information from the victim enabling them to authorise a transfer of large sums from the victim’s account to a so-called ‘safe’ account controlled by the criminals. Once there it disappears into the banking system and is never seen again.

As I have warned readers before, these thieves pretend to be from a trusted business such as BT, Microsoft or even the customer’s own bank. They use a technique called ‘number spoofing’ so that caller ID shows the correct number for the firm they pretend to be from.

Speech bubble saying 'If you get a call or a text out of the blue from someone you do not know, assume they are a thief and just hang up'

Code is failing

The new code was supposed to ensure that victims of this criminal psychological warfare were protected. It is failing. Eight major banking groups belong to it but figures released by the Payment Systems Regulator revealed that one bank failed to fully refund 99% of its customers. Even the best of the eight rejected more than a quarter of claims, leaving the victims to pick up the whole bill. Whether you get any of your money back is a lottery. But it is one we enter with our eyes closed. The Regulator refuses to reveal the names of banks behind this anonymous data. It knows which bank refunds more than half its customers in full and which refunds just one in 100. But it keeps that information secret from the people who need to know – bank customers.

Rather than protecting people, the banks are using the code to find reasons for not paying up. Often they blame customers for ignoring what the code calls ‘effective warnings’ when they are about to make an online transfer. But these are often given in very general terms and, in any case, they are by definition not effective because the customer goes ahead with the transaction. People are overwhelmed by the immense psychological pressure the thieves use to persuade them their money is at immediate risk and that the thieves are the ones to keep it safe. Warnings are clicked through in a moment.

It need not be like this. TSB is one of the smaller banks and has chosen not to join the code. That is because it has its own policy of reimbursing everyone who has money stolen in this way. TSB claims that since it began this policy all victims were refunded in full unless the bank could show that they had been part of the crime.

Banks are at fault

By blaming victims, the banks ignore their own role in facilitating these crimes. First, the money that is stolen must be moved to a genuine bank account. The banks allow thieves to open these accounts or to hijack genuine accounts owned by others. Second, the banks fail to notice out-of-character transfers made by the victims often sending thousands of pounds from an account that has been used just for small amounts in or out for years. Third, once the proceeds of crime are moved to the thieves’ account the banks fail to act swiftly enough to follow the money and stop it before it is split up and sent to dozens of other accounts, then disappears to a foreign jurisdiction where regulation is lax.

Protect yourself

There is an impenetrable wall you can build to protect your money. If you get a call or a text out of the blue from someone you do not know, assume they are a thief and hang up or delete the text or email. Never engage. If you do you can be hooked and reeled in.

Speech bubble saying 'Rather than protecting people the banks are using the code to find reasons for not paying up'

Pursue a refund

If you or someone you know does fall victim to this crime, find out where the money was sent to – you can identify the bank from its sort code at sortcodes.co.uk. You now have the right to complain to that bank as well – it is called the receiving bank – about its role in the crime. In some cases, it has allowed a thief to open the account. More commonly the account is a legitimate one and the owner – often young and hard up – is persuaded to become what is called a money mule. The thief puts the money into the account and then the mule moves it to another in return for a small slice of the money. This is money laundering and all banks should warn their customers that they will be committing a crime if they agree to do it. Unless the bank has warned customers, it is on weak ground if a claim is made for the return of the money. It is also guilty of not spotting that stolen money was being moved and not acting quickly enough to stop the money and recover it.

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Someone who is a victim should complain to both their bank and the receiving bank and demand a full refund on the grounds the banks did not protect their money. It does not matter if the bank is in the code or not. Since 31 January 2019 the Financial Conduct Authority Handbook says victims of these frauds can complain if a bank ‘did not do enough to prevent, or respond to, an alleged fraud’ (DISP 2.7.7G(2)). If the banks refuse then the complaint against both banks should be made to the Financial Ombudsman. It upholds 75% of complaints about this kind of fraud. It does no harm to contact the press – that can embarrass the bank into paying up.

Remember, if your money is stolen it is not your fault. These people are highly effective and well organised professional thieves.

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Article first published in Saga Magazine February 2021.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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