Personal Finance & Money Asked on July 28, 2021
I’m interested in what happens when money is stolen from a UK bank account. I have read on the Citizens Advice Bureau website that
Your bank should refund any money stolen from you as a result of fraud
and identity theft. They should do this as soon as possible – ideally
by the end of the next working day after you report the problem.The bank can refuse to refund you if they find you acted fraudulently
or were ‘grossly negligent’ – for example, if you shared your pin or
password with someone else.
I’m looking for clarification of a couple of statements in this quote.
I see that my "bank should refund any money stolen from [me] as a result of fraud and identity theft". What obligation are banks under to do this? Would it be reasonable to expect the same protection under these circumstances from a well-established bank as from a newer challenger bank?
I’m also interested in knowing what would classify as "grossly negligent" under these circumstances. I’m confident enough that I’m not going to share my pin number with anyone that I don’t feel that I need to worry about the example they give.
Personally I consider writing my passwords down on a piece of paper to be reasonably secure, and using the same weak password on different websites including my bank account to be insecure. It would be interesting to see if either are classified as grossly negligent.
Any links to further reading about this, maybe wording of some related laws, would be appreciated.
There are no laws requiring banks in the UK to refund a customer's money after they get defrauded. Such a law, if it were to exist, would create an incentive for people to collaborate to "defraud" themselves, knowing that they would get reimbursed. In fact, not only is there no law requiring banks to refund account holder money, but the law specifically states that a bank does NOT have an obligation to refund an account holder's money.
Nevertheless, banks will always reimburse a victim who they believe to be an innocent victim, because otherwise the publicity for the bank would be bad. Banks will generally not reimburse anyone that they suspect as having a hand in the fraud, or who has authorized the payment, as is often the case.
(Note that a commenter to my post incorrectly claims there is some kind of regulatory rule that forces banks in the UK to refund account holders who lose money to fraud. Not only is this untrue, but is unlikely to ever happen for reasons stated in my first paragraph above. A recent study showed that 43% of fraud victims received reimbursement. So, the commenters assertion that fraud victims get reimbusement as a matter of course is just a lie. There is a subdivision of the Financial Conduct Authority called the "Payment Systems Regulator" that has been attempting to get such a rule passed since it was created in 2013(?), however, as of now, these attempts have had no effect. This spring the PSR has been "soliciting comments" on their latest attempt to get such a rule to be written. The "finanical ombudsmen" mentioned by the commenter is simply another court and there is no guarantee whatsoever that they will rule that an account holder's money will be refunded. According to the Ombudsmen's web site, in the most recent quarter they granted compensation or relief in 33% of the complaints. The "rules" mentioned by the commenter state only that an institution "should" refund money "if the payment was unauthorized" by the account holder. Of course, in most cases of fraud, the account holder did authorize the payment. That's the whole point of fraud, to trick someone into authorizing a payment.)
Correct answer by Five Bagger on July 28, 2021
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