British banks can’t be held responsible for fraudulent transactions if the customers themselves had authorized the payment from their account, the UK’s top court has ruled, limiting the prospect of lawsuits by scam victims.
(Bloomberg) — British banks can’t be held responsible for fraudulent transactions if the customers themselves had authorized the payment from their account, the UK’s top court has ruled, limiting the prospect of lawsuits by scam victims.
Barclays Plc, the bank facing a compensation claim over a payment fraud in the case, was in fact duty bound to carry out the customer’s instructions to make the payments, the Supreme Court ruled. Placing a duty on the bank to stop payments expressly authorized by the customer “is inconsistent with the first principles of banking law,” the judges said in the verdict.
Barclays can, however, still face a trial in the case on whether it was in breach of its duty to act promptly to try to recall the fraudulent payments made in the case after the fraud came to light.
The verdict comes just a month after the UK’s Payment Systems Regulator brought new rules requiring banks and payment companies to reimburse victims of so-called authorized push payment, or APP frauds. The bank and firms sending and receiving payments would equally share the liability and provide additional protections for vulnerable customers, according to the new regime to curb frauds.
Barclays’ duty is one that requires the bank to make inquiries to ensure that it doesn’t make a payment which the customer has not authorized, the Supreme Court said.
Barclays welcomed the Supreme Court’s decision, which gives “certainty and clarity on an important issue of law and public importance,” a spokesperson for the bank said in a statement.
The verdict is a relief for lenders in the keenly-watched case as a loss for Barclays could have exposed banks to a flurry of lawsuits from fraud victims. Authorized push payment frauds, where customers are tricked into making a payment, are estimated to cost victims about £500 million ($647 million) annually, according to the payment regulator. The amount is, however, a fraction of the £2.6 trillion fast payments transactions processed annually, the regulator said in its cost-benefit analysis.
“This judgment will be viewed by many as a victory for common sense,” said Sue Millar, a partner at law firm Stephenson Harwood. “The idea that banks had a duty to second-guess the motivation behind a customer’s payment request was, in reality, totally unworkable” and significantly reduces the scope of a bank’s liability, she added.
The dispute in the case arose after a music teacher and her husband were deceived into sending £700,000 from their Barclays savings account to the UAE bank accounts of a fraudster in 2018. The money, which was a bulk of the couple’s live savings, had gone by the time the fraud was discovered.
At the commercial court in Bristol the bank succeeded in striking out the case. The judge rejected the victims’ argument that the bank breached its duty to put in measures to detect and prevent such a fraud and reverse the transaction. The Court of Appeal overturned that ruling leaving Barclays to appeal to the Supreme Court.
“Anyone celebrating today’s ruling may be overlooking the recent changes to reimbursement rules, which essentially require banks to reimburse consumers’ money lost through APP fraud,” said Mike LaCorte, chief executive officer at Conflict International, a private intelligence and security agency. With the growing threats of more sophisticated frauds,“banks now need to redouble their efforts to educate consumers on the signs of fraud,” LaCorte said.
(Updates with expert comments in seventh and last paragraphs)
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