When is an APP scam not an APP scam?
The Payment Systems Regulator (“PSR”) has published final guidance [1] to support Payment Service Providers (“PSPs”) in assessing whether an Authorised Push Payment (“APP”) scam claim raised by a consumer should be dealt with as an APP scam under the Faster Payments or CHAPS reimbursement rules or as a private civil dispute between the consumer and recipient of the payment.
Claims which relate to a civil dispute are not reimbursable under the reimbursement requirement. The guidance sets out factors that PSPs should consider when assessing whether a claim solely relates to a civil dispute and therefore does not fall within the requirement to reimburse.
What is a civil dispute?
Civil disputes can vary in nature but most often involve instances where:
- A consumer has paid a legitimate supplier(s) for goods or services and has not received them and/or they are defective in some way, and
- There is no indication of an intent to defraud.
Core principles
Clearly, the classification of a claim as an APP scam or a civil dispute has a significant impact on all parties and will affect the complainant’s legal rights and options for redress. The following are the core principles that PSPs are expected to use to guide their assessment:
- All PSPs should consider each claim and payment on its own merits
- All PSPs should consider the circumstances leading up to the disputed payment(s).
- The sending PSP should consider all available relevant information when assessing a claim.
- The sending PSP should make best efforts to gather relevant information in a timely manner.
- The receiving PSP(s) should provide accurate and complete information where requested or material about the receiving account and the account holder.
Where a PSP believes the consumer’s claim for reimbursement is a civil dispute, the onus is on the PSP to demonstrate why and to clearly communicate this to the consumer or their representative. PSPs should also detail this within their internal records.
What’s the difference?
An APP scam is defined as:
“…where a person uses a fraudulent or dishonest act or course of conduct to manipulate, deceive or persuade a consumer into transferring funds from the consumer’s relevant account to a relevant account not controlled by the consumer, where:
- The recipient is not who the consumer intended to pay, or
- The payment is not for the purpose the consumer intended.
These are the key factors which PSPs are required to determine on the facts presented. They can do this by considering if there is evidence to indicate a dishonest or fraudulent act, whether the consumer has been deceived or persuaded (as part of that act) about the recipient’s identity or the payment’s true purpose, whether the consumer has been manipulated by the alleged scammer and/or whether there was an intention to defraud on the part of the alleged scammer. PSPs should also seek to understand what the consumer understood or knew about the purpose of the payments at the time they were made.
Intention to defraud
By ‘intent to defraud’ the PSR means where the alleged scammer has acted KNOWINGLY and WITH SPECIFIC INTENT TO DECEIVE the consumer as to the purpose for which the payment is sought, doing this for the purpose of making gain for themselves or another.
Key factors
The PSR has set out five key factors that a PSP should consider when determining if a claim relates to a civil dispute or a reimbursable APP scam. These factors are independent of one another and do not represent an exhaustive list. They are:
| 1 | The communication and relationship between the consumer and the alleged scammer | A PSP should consider evidence the consumer can provide, such as communications between the consumer and alleged scammer (including any adverts delivered via online marketplaces). |
| 2 | The trading status of the alleged scammer (at the time the payment(s) were made) | PSPs should consider information held on the Financial Services Register and on Companies House alongside any information provided by a third party. |
| 3 | The alleged scammer’s capability to deliver any goods and services related to the claim | PSPs should consider whether the alleged scammer’s capability to deliver indicates there was an intent to defraud, rather than a legitimate commercial transaction that failed to work out as the consumer expected. |
| 4 | The extent to which the alleged scammer deceived the consumer as to the purpose of the payment | Dishonesty on its own is not sufficient to consider a payment an APP scam. If the alleged scammer’s dishonest actions do not impact the intended purpose of the payment, then an APP scam may not have taken place. |
| 5 | Information held by the receiving PSP(s) about the relevant account(s) | We expect the receiving PSP(s) to share relevant information with the sending PSP including (but not limited to): account opening information, account history/usage, any markers on the account, any previous fraud claims, information gathered from their account holder or any third parties. |
Principles in practice
In some cases, the difference between an APP scam and a civil dispute may be obvious, but in other cases it will be more difficult to determine. The sending PSP may need to gather information from a range of sources (including the alleged scammer and third parties) to assist in its investigation. PSPs must consider each case on its own merits and take care to consider all the information provided.
It may be more difficult for PSPs to distinguish between an APP scam and a civil dispute where the consumer has paid the intended recipient. In these circumstances, PSPs will be required to consider the wider facts of the claim and whether there was an intention to defraud.
These factors should still be considered where it appears that the consumer payment(s) met their intended purpose. For example, a consumer investing in cryptocurrency, and appearing to pay a cryptocurrency account in their own name, does not automatically mean this was a genuine investment. When determining whether the payment is an APP scam, a PSP should consider who had control of the account and if there was any deception or intent to defraud.
PSPs should be mindful of the potential that the alleged scammer may have provided returns or services to further the consumer’s confidence and extend the profitability of their crime. There may be circumstances where the consumer believes they know the person they were paying and had previously received goods or services they were satisfied with. This does not automatically mean that the claim should be treated as a civil dispute. Equally, non-receipt of goods or services does not on its own indicate that an APP scam has taken place.
A warning on the FCA register which suggests the consumer has been contacted by a cloned investment firm would indicate that the claim is a reimbursable APP scam. 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.
Conclusion
Assessing whether a claim is a reimbursable APP scam, or a civil dispute is not an easy task and will depend on the individual facts of each case. PSPs should consider all the available information in the round before reaching a conclusion.
If you are a PSP faced with a complex claim and need advice, please do not hesitate to get in touch at hello@tenetlaw.co.uk, we will be happy to help.
For more information about this article please contact the author: Esther Phillips
