APP fraud: UK PSR final guidance on distinguishing between APP scam claims and civil disputes

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APP fraud: UK PSR final guidance on distinguishing between APP scam claims and civil disputes

24 September 2024

The Payment Systems Regulator (PSR) has issued its final guidance to support payment service providers (PSPs) in assessing whether an APP scam claim raised by a consumer is not reimbursable under the new Faster Payments Scheme (FPS) or CHAPS reimbursement rules because it is a private civil dispute.

What’s new?

In July, the PSR published draft guidance on this topic (see our previous Engage article). The final guidance remains substantially the same as the draft guidance, with a few key additions:

The burden of proof falls on the PSP where the PSP believes a consumer’s claim for reimbursement is a civil dispute, and PSPs must keep an internal record of their reasoning as well as communicating their decision to the consumer (or the consumer’s representative).
The five high-level factors remain the same, but the final guidance confirms that where the alleged scammer is a private seller or an individual, the second high-level factor (the trading status of the alleged scammer) may not always apply.
On some of the five high-level factors:
- Communication and relationship between the consumer and the alleged scammer: The final guidance recognises that some APP scams will involve fraudsters posing as private individuals where the scam occurs over an online marketplace. As a result, PSPs should also consider the communication between the consumer and alleged scammer, such as adverts and the market price of the goods/services (as well as other factors).
- The trading status of the alleged scammer:
  - For peer-to-peer transactions, PSPs should consider consumer reviews to help establish the legitimacy of the private seller – but also while being aware that online reviews can be fabricated.
  - In some cases, where the trading status has changed since the consumer made the payment(s) this should also be considered as an indicator that points to an intent to defraud.
- The alleged scammer’s capability to deliver any goods or services related to the claim:
  - The draft guidance suggested PSPs should consider whether there was an attempt by the alleged scammer to deliver or provide the product or service – that has now been removed from the final guidance.
  - PSPs should consider any information provided about or by the alleged scammer after the payment(s) has been made, such as information about courier issues or supplier insolvency.
  - New guidance has been given on investment scams when considering this factor. The final guidance explains that if a consumer has received a return from an investment opportunity, a PSP shouldn’t conclude that the claim is a civil dispute. Instead, it should consider this information alongside all the other factors to determine if a reimbursable APP scam has taken place.
The final guidance confirms that receiving PSPs should also share information gathered from any other third parties (as well as information gathered from their account holder) with sending PSPs.

What’s next?

The FPS and CHAPS reimbursement requirements come into effect on 7 October 2024.

If you would like to discuss the PSR’s final guidance or any aspect of the new APP fraud reimbursement requirement, please get in touch with any of the people listed above, or your usual Hogan Lovells contact.

Authored by Jennifer Staniforth and Virginia Montgomery.