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When Russia invades the Ukraine, Alina Bondarenko* agrees to protect her brother’s savings. She arrived in the UK before war broke out; His brother, who is of fighting age, was banned from leaving his homeland. Fearing the collapse of Ukraine’s banks, he transferred his money to his sister’s bank account.
Within weeks she was swindled, along with Bondarenko’s own funds, in an online scam, and a loophole in customer protection meant she was ineligible for a refund from her bank.
Bondaranko works as a cleaner to support her one-year-old child, and has a limited understanding of English. Anxious to increase her income as prices rose, she answered a Facebook ad offering two hours of home-based work a day. She was approached by an agent from a bogus investment firm who told her she would buy and sell stocks, and charged £250 for an online training course.
The agent taught her investment strategies, and won her trust during the days of phone and video calls. He persuaded her to open an account in her name with an e-money service, Revolut, and transfer the savings she had with Barclays.
She was then tricked into making five debit-card payments totaling £32,000 on a cryptocurrency exchange platform. The crypto account belonged to a fraudster and the siblings’ life savings disappeared.
Victims of fraud in authorizing payments by bank transfer (known as APP fraud) are protected by the Contingent Compensation Model (CRM) code. It is a voluntary scheme that requires banks to refund customers who have not been unduly negligent. Poor customers must be refunded in almost all circumstances.
However, CRM does not cover payments by card, check or direct debit. If Bondarenko, who can be classified as vulnerable, had been ordered to transfer funds to the crypto exchange through the Rapid Payment System, or Chaps (Clearing House Automated Payment System), she would have been compensated by Revolut, which she is not. Signed up to the code, but claims to adhere to its spirit. Because she didn’t pay by debit card.
CRM was launched in 2019 because electronic “push payment” transactions were insufficiently secure compared to other payment methods. Credit card users can sue under Section 75 of the Consumer Credit Act if a merchant is in breach of contract.
Visa and MasterCard operate chargeback schemes for disputed debit card transactions, while the Direct Debit Guarantee requires banks and building societies to refund contested payments that are not made in accordance with Direct Debit rules.
However, these schemes were developed before the rise in online fraud and, unlike CRM, do not cover authorized payments to scammers. Revault attempted a chargeback on Bondarenko’s behalf, but, despite her approving payment to a legitimate crypto firm, it was inadvertently rejected in a fraudster’s wallet.
Bondarenko’s ordeal suggests a gap in consumer protection as financial institutions come under increasing pressure to refund all fraud victims. Scams are becoming increasingly sophisticated and prolific, and the idea behind CRM is that banks can and should use their knowledge of criminal tactics to alert customers attempting unscrupulous transactions.
The reimbursement costs banks face if they fail to do so is considered an incentive to move forward, although less than 50% of APP fraud victims were refunded last year. The Payment Systems Regulator, which oversees electronic transfers, has launched a consultation on whether to make refunds to victims of app fraud mandatory. But there’s no word on updated rules to protect people like Bondarenko who authorize payments by card.
TThe company that defrauded Bondarenko has set the stage perfectly for defrauding potential customers. It has the same trading name as a reputable US investment platform, a convincing website with detailed financial pages, and a TrustPilot page full of five-star reviews that, on closer inspection, appear to be fake.
Last month the City of London Police, which runs the Action Fraud Hotline, reported an epidemic of fake investment ads on social media. Fraudsters running “get rich quick” scams lost more than £890,000 in the 2021/22 financial year, an increase of 49.5% on the previous 12 months.
Criminal gangs pay social media influencers to endorse their ads, and trick respondents with professional-looking websites, sometimes cloned from reputable companies, and with diligent social engineering.
Victims are usually asked to “invest” through crypto exchanges. To avoid their bank questioning the transaction, they may be asked to transfer their money first to an e-money institution, such as Revolut, which is not subject to the same rules as banks, and is more used to processing large sums for customers.
In Bondarenko’s case, Barclays initially blocked her payments to the new Revolut account but, prioritized by the scammer, she assured her bank that they were genuine. Due to her vulnerable circumstances, Barclays offered to refund half of the stolen amount after contacting her. the observer.
Revolut, which did not question the transactions, was also contacted the observer But refused to give her money back. However, after learning of Barclays’ gesture, he changed his mind.
It said: “Since March, Revolt has helped more than 250,000 Ukrainian refugees gain access to money and payment services, giving people fleeing conflict the ability to easily access their money. After considering the circumstances of Ms. Bondarenko and her family, we are a gesture of goodwill. As has reimbursed half of the funds lost to the scammers.”
Life crisis costs are likely to tempt more people to sign up to phony schemes offering generous returns. Payment Systems Regulator said the observer That once the government updates the law, it will compel companies to refund victims of app fraud to encourage more investigation and prevention.
However, there are no proposals to tighten protections for victims who pay scammers by card. The Financial Conduct Authority, which regulates banks, says: “We expect the companies we regulate to protect effectively against financial crime and to treat their customers fairly. If a customer is unhappy with how they have been treated and has lodged a complaint, they should refer the matter to the Financial Ombudsman Service.”
*Name has been changed
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