Big banks still dragging their heels over online fraud repayments

Online and plastic card fraud cost Scotland more than £10 million last year, but many victims are being embroiled in disputes with banks as they try to claim refunds.

The 10.6m fraud bill in 2010 was slightly lower than the previous two years as banks and consumers became more alert to the risks, but online and debit and credit card scams continue to cost thousands of Scots dearly as fraudsters become increasingly sophisticated.

As household finances are squeezed, fraud victims are anxious to ensure they are not left out of pocket, but for some that can turn into a long battle.

Since late 2009, banks and building societies have operated under Financial Services Authority (FSA) rule stating that customers making claims for unauthorised transactions must be refunded immediately, unless there is clear and specific evidence that they have acted fraudulently or recklessly. Firms can reclaim the refund later if their investigation reveals a customer has committed fraud or been grossly negligent.

Under the FSA's Banking Code of Business, the burden of proof is on the bank. The payment service regulations within the FSA's code state: "Where a banking customer denies having authorised a payment, it is for the firm to prove that the payment was authorised."

Where a payment from an account was not authorised by the customer, the bank "must, within a reasonable period, refund the amount of the unauthorised payment". And where applicable, they must restore the account to the state in which it would have been had the unauthorised payment not taken place.

A spokesperson for Lloyds Banking Group said Lloyds TSB Scotland and Bank of Scotland guarantee that customers who fall victim to online banking fraud will always be reimbursed in full, as long as they've taken the basic precautions, such as not giving out their online banking login details to a third party.

Refunds have to be made immediately, unless the bank has evidence to suggest the customer authorised the transaction or is guilty of negligence.

Credit card transaction refunds don't have to be made straight away, but providers are not allowed to charge interest or ask for repayment of the amount unless it is able to prove that you are liable for the amount.

Fraud victims are liable for their losses only if they acted "without reasonable care". The code states that if cardholders have taken reasonable care, the credit card company has to offer a full refund.

The maximum that cardholders are liable for is 50, if they failed to tell their provider before the fraud occurred that they've lost their card or had it stolen, or failed to keep their security details - such as the Pin number - safe.

The confusion around refunds arises largely from a lack of clarity in the guidelines. Experts believe the absence of a clear definition of "reasonable care" gives banks too much room for manoeuvre in cases where there are doubts - and in such cases some banks continue to reject claims for refunds.

Individuals who have not been able to provide material evidence that transactions were not made by them have had to suffer the losses or, where applicable, make a claim on their card protection insurance.

The Financial Ombudsman Service (FOS) currently receives about 50 complaints a week from people in dispute with their bank over transactions on their debit and credit cards. There are a further 20 complaints a week relating to cheque fraud. Around half of the complaints are upheld in favour of the consumer.

In most of these disputes, banks have refused to issue refunds on the basis that the customer must have known about the transaction as it was carried out with a genuine card and the correct Pin. In one case typical of those described by the FOS, an elderly customer asked his bank to explain why 150 in cash had been taken from his account, claiming that he hadn't withdrawn it himself.

On investigation it transpired that the money had been taken out 45 miles away from where the customer was working at the time, as his employer confirmed. The bank provided what it claimed was "clear proof" that the customer's card and Pin were used to make the withdrawal.

Yet the FOS, unconvinced by the proof, upheld the complaint and ordered the bank to refund the money, plus interest covering the time it was missing, and another 100 for distress caused.

But Jemma Smith, of Financial Fraud Action, said the banking industry has a good record of paying refunds.

She said: "The vast majority of people who have been fraud victims know that banks pay the money back, and quickly. In 70 per cent of cases it is the bank that identifies the unauthorised payment first."

Victims of online and debit card fraud have 13 months in which to apply for a refund - after that period has expired the provider doesn't have to refund you. The time frame for credit card users, who are protected under the Consumer Credit Act, is technically unlimited.

If you do find an unauthorised payment has been made from your account, the first port of call is the bank.

"Speak to your bank as soon as you can," said Smith. "Take any evidence and be prepared to provide receipts. This is why it's important to keep hold of your receipts."

The bank may then recommend that you report it to the police, perhaps if something has been stolen.

If the bank does not provide a refund it has to explain why. In such cases you can escalate your complaint to the ombudsman (www.financial-ombudsman.org.uk or 0800 0234 567).

For more information, visit: www.moneymadeclear.org.uk/products/bank_accounts/bank_ accounts.html