Consumer groups have attacked a regulator’s decision to slash the planned maximum amount that banks will have to refund to UK fraud victims from £415,000 to £85,000. One said it meant some people were likely to have their lives “destroyed”. The Payment Systems Regulator (PSR) confirmed on Wednesday reports from the previous evening that it was launching a consultation to reduce the threshold, which is due to come in on 7 October, despite having previously said that a maximum of £85,000 was “too low” as it would “exclude a significant number of victims”. The decision means that hundreds of people a year – possibly more – will be left out of pocket, and some will face six-figure losses. The watchdog now stands accused of caving in to the demands of banks, fintechs and some politicians. The consumer body Which? was scathing about the decision, saying that victims of high-value frauds such as investment scams and those involving people transferring large sums for a house purchase “stand to have their lives destroyed by this screeching U-turn”. It added that the regulator had concluded that those people “should be abandoned to provide a small benefit for parts of the finance industry that have been warned over their role in facilitating financial crime”. How did we get here? Fraud in the UK payments industry has soared in recent years. Of particular concern has been a rise in scams that trick people into sending money to bank accounts operated by criminals – known as authorised push payment (APP) scams. Some people have had tens or hundreds of thousands of pounds stolen. In some cases the fraudsters have posed as a builder or solicitor, or an organisation such as HM Revenue and Customs. The scammers sometimes pretend to be selling goods, services or investments that do not exist or never arrive. In other cases, victims are tricked into believing they are in a romantic relationship. APP fraud losses totalled £459.7m in 2023, and the total number of cases climbed to 232,429, the banking body UK Finance said earlier this year. Many banks and financial companies have signed up to a voluntary industry code on reimbursement – but consumer organisations such as Which? have previously said that the banking industry’s approach to refunding victims was unfair and inconsistent. Last year, the regulator announced a shake-up designed to ensure more victims were refunded. It outlined new mandatory rules requiring banks and other payment companies to reimburse fraud victims who had been tricked into sending money to scammers, with a maximum reimbursement of £415,000 for all consumers. What was the industry response? Banks were not happy. Dozens of financial firms have been lobbying ever since for the proposed maximum to be brought right down, with some smaller companies claiming that a cutoff set at that level would be financially crippling for them. Others have raised fears that the higher level could have tempted criminals to exploit the compensation system and potentially put smaller fintech companies out of business, and there had been reports that the measures had prompted concern within the former Conservative and current Labour governments. On Wednesday, the PSR said it had “listened to concerns about the reimbursement limit” and was now proposing a new maximum refund of £85,000 that would take effect on 7 October (there had been calls from some firms for this start date to be delayed but these have been rebuffed). But didn’t the PSR say that was too low? It did. In August last year, the regulator argued that £85,000 and £30,000 (another possible option) “were deemed too low, since they would exclude a significant number of victims. There would be significant harm to those victims defrauded above this amount.” In December, it warned: “A significant proportion of investment scams in particular would exceed a £30,000 or £85,000 limit. Based on industry data, we recognise that a significant proportion of total fraud value would also sit above these limits.” What is it saying now? The regulator said it had carried out a review that found that in 2023 – out of more than 250,000 cases – there were 18 instances of people being scammed for more than £415,000, and 411 instances of being conned out of more than £85,000. “The proposed new cap will still see over 99% of claims [by volume] covered,” it said. It added that the new cap was in line with the Financial Services Compensation Scheme limit, “which is currently £85,000 and well understood by consumers”. So is it a done deal? In theory, there is still time for yet another U-turn: the consultation on the new £85,000 cap closes on 18 September, after which the PSR will consider the responses and confirm its final approach before the end of September and the 7 October implementation deadline. Which? said the regulator “must stick to its original plan for a £415,000 limit”.