Fraudulent Activities Plague New Zealand’s Finance Industry: Who Bears the Cost?
Regulators in New Zealand are grappling with a pressing question: who compensates those scammed? In this country, citizens expect banks to refund fraudulent payments if their credit card is hacked. However, what about instances where victims ignore warnings and authorize suspicious transactions? The issue has become increasingly contentious as tens of millions of dollars are lost each year to romance scams alone.
A Vexing Problem
The UK has taken a more proactive approach in addressing this issue, particularly with authorized push payments (APPs). APPs saw losses increase by 39% last year to £583.2 million. An APP differs from an unauthorized payment, where an account is used without the customer’s knowledge or consent.
The New Zealand Approach
New Zealand authorities have been slower to act on this matter. While banks are not legally liable for customers’ losses, the industry has recognized instances where they should intervene to prevent fraud. This realization led to a voluntary code offering consumers greater protection through a contingent reimbursement model.
Proposed Update to the Code
The proposed update to this code will place an even greater burden on banks, requiring them to reimburse customers for APP fraud in almost all cases, with payouts made within 48 hours. Based on reported scam losses last year, achieving the targeted payout rate of 95%+ would cost the UK banking industry a minimum of £286 million (NZD553m) annually.
Another Example of Refunds
New Zealanders who fell victim to an illegal sweepstake and prize promotion scheme will have access to refunds from the US Federal Trade Commission. The agency returned almost $25 million to consumers worldwide after suing the operators of Next-Gen Sweepstakes in 2019.
A More Effective Approach Needed
As the finance industry grapples with these issues, it is clear that a more effective approach is needed to protect New Zealanders from fraudulent activities. Regulators must work closely with banks and other financial institutions to establish clearer guidelines for reimbursement and compensation, ensuring that victims of scams are not left footing the bill.
- The UK’s proactive approach to addressing APP fraud is a model for New Zealand to follow.
- A more effective approach requires regulators to work closely with banks and other financial institutions.
- Clearer guidelines for reimbursement and compensation are needed to protect New Zealanders from fraudulent activities.