Banks should be forced to compensate scammers too

A couple of weeks ago, I wrote about the rise in the number of people falling victim to sophisticated scams, which see them persuaded to transfer large amounts of money from their bank accounts. They're cleverly constructed and it’s easy to see how smart people have been roped into parting with their money.

As these scams tend to involve people authorising the transfers themselves – albeit under the impression that they are being instructed to do so by their bank – there is no compensation waiting for them at the end of the line.

In the worst cases, the effects are devastating – and end with families not only handing over their life savings, but sometimes their entire unused overdraft limit as well.

Because people have a right to be compensated for card fraud, they often assume that their bank will refund them when they fall victim to this kind of con. In most cases, they won’t – and in fairness, it’s not really the bank’s fault. Nevertheless, as this kind of elaborate scam becomes more common, there’s a good case to be made that banks should be on the hook.

While a family can insure themselves against the possibility of having all their possessions stolen, there’s no such thing as scammers insurance – and even if it were offered, it’s highly unlikely that people would buy it.

Banks best placed to be the backstop

But as the gatekeeper to consumers’ financial affairs, banks would be well placed to provide this protection. Although scams are on the rise, it is still a minute percentage of the population who fall victim to them each year. Banks could surely insure against this risk relatively cheaply – and while there would be a cost, banks would of course be free to pass this onto customers, just as they pass on costs today (albeit in rather oblique ways).

By lumping scams together with fraud, and forcing banks to be the backstop, the banking industry would also have a vested interest – along with their insurers - in creating ways to make it harder for these scams to take place in the first instance.

From the anecdotal evidence I hear, the Police are woefully under-resourced in this area – and there’s no appetite in government to invest the kind of money that would be needed to effectively prevent scams.

The banking industry may feel hard done by – as yet another financial obligation is being piled onto them – but they are already spending a considerable amount of money dealing with claims for these kind of scams, and fighting them at the Financial Ombudsman Service.

Naturally, the claims process would need to be robust – and not open to abuse. But banks would be best placed to see whether a claim was genuine or not. They have a unique view of their customers’ financial habits – and could lean on some of the sophisticated tactics used in the insurance industry to weed out false claims.

It will take political willpower to push through a scheme such as this. But surely the government can’t sit back and watch an increasing number of people have their life savings drained away in a matter of minutes.

Whether it’s the banks who pay for it or not, it’s certainly up to the government to lead the way in creating a solution.