New Zealand banks told to come up with a reimbursement scheme for scam victims by September

Commerce Minister Andrew Bayly has ordered banks, by September, to come up with a voluntary reimbursement scheme for customers who have been scammed.

Parliament’s Finance and Expenditure Committee completed an inquiry into banks’ processes and consumer protections against scams last year. 

The inquiry report recommended adopting a Confirmation of Payee scheme, investigating a reimbursement scheme, and asking the banking sector to update its code of practice.   

Committee members said they thought banks’ processes should be strengthened to protect consumers against scams, which were becoming more frequent. 

The Banking Ombudsman told the Committee that scams had been increasing in volume, sophistication, and dollar value every year since 2015. 

Bayly, the coalition Government’s Minister of Commerce and Consumer Affairs, said on Friday he supported the committee recommendations.

“We agree that the Code of Banking Practice needs updating to protect consumers, and banks should investigate a voluntary reimbursement scheme to improve consumer compensation”.

“I have written to the banking sector, setting out my expectations. I will monitor progress in the coming months,” he said. 

A news report by the NZ Herald said the letter to the NZ Banking Association required a response by September this year and told the sector to make it a priority.

Bayly didn’t reveal what would happen if banks were to miss that deadline, but it is possible the Government could use regulation to force through the changes. 

In a press release, the Commerce Minister said it was unacceptable that almost $200 million was lost to scams last year. 

“Scams are becoming more sophisticated and causing a growing number of vulnerable Kiwis significant emotional harm and financial loss,” he said. 

“Bank processes need to be strengthened to give Kiwis better protections. A range of industry work is already underway, including establishing a confirmation of payee service, but there is more to be done”. 

UK-based Lloyds Banking Group was able to reduce bank transfer scams by more than 30% in the first few months after setting up a confirmation of payee system. 

New Zealand banks mostly support such a scheme but the reimbursement scheme could be less popular. 

The UK payments regulator has recently set new rules which require banks to reimburse fraud victims as a way to incentivise them to better prevent fraud from occurring. 

Currently, NZ banks must “act with reasonable care and skill” to pick up on warning signs of fraudulent activity and attempt to protect customers. 

As long as they meet this standard, they are not required to reimburse consumers who have been hit with an ‘authorised payment scam’ such as when they pay a fake invoice. 

Banks generally do have to reimburse customers that fall victim to ‘unauthorised payment scams’ such as phishing attacks or identity theft.

Bankers respond

Roger Beaumont, chief executive of the NZ Banking Association, said banks were committed to protecting their customers

“Confirmation of payee will start to roll out by the end of the year, and our anti-scam centre is up and running, targeting money mules,” he said. 

Banks will investigate a voluntary reimbursement scheme and their findings could be incorporated into the Code of Banking Practice.

However, Beaumont said banks should not be solely responsible for stopping scams. The Government and social media companies also needed to step up. 

“We support the Banking Ombudsman’s call for digital platforms to remove fake websites more quickly,” he said in a statement. 

“They’re often at the start of a chain of events that leads to a scam. To better protect New Zealand from scams we need a co-ordinated multi-sector approach where everyone plays their part”.