Scam losses could hit $4b this year. Should banks wear the cost?

Outgoing deputy chair of Australia’s competition watchdog, Delia Rickard, did not mince her words when discussing the surge in scams at a recent conference. “Scams are out of control,” Rickard told an Australian Securities and Investments Commission event last week.

Rickard, who will leave the Australian Competition and Consumer Commission (ACCC) early next year after 10 years, expressed hopes the country could improve its defences by pointing to a government pledge to develop an anti-scam centre.

The government says it will introduce new codes for banks, telcos and social media platforms to help counter the wave of scams.Credit: Ryan Stuart

But lately, the news on scams has been pretty grim.

Australians lost an estimated $2 billion to scams last year, and the government says losses could well double to $4 billion this year. The mass data breaches at Medibank Private and Optus could leave millions of Australians more vulnerable to scammers.

“Be vigilant,” is the message from banks and regulators, who are this week marking ‘Scam Awareness Week’. Clearly though, these worthwhile campaigns have not been enough to stop a flood of fraud.

So, there’s a debate about other possible responses. One idea that’s been raised is whether banks should shoulder more of the cost of reimbursing scam victims, thereby giving banks an incentive to improve their defences against scams.

There is a precedent overseas. The UK regulator recently proposed a plan to force banks to reimburse victims of a common scam in which fraudsters trick people into sending them money through their bank.

Consumer Action Law Centre chief executive Gerard Brody wants something similar here, saying there are currently no consistent rules for how banks should deal with scam victims. Previous analysis by the consumer body found most disputes between scam victims and banks at the Australian Financial Complaints Authority were decided in favour of banks.

“There should be a standard, and if they don’t meet it they should be reimbursing customers,” Brody says.

Banks have predictably opposed such calls. A spokesman for the Australian Banking Association says banks often do cover losses, with $103 million in losses from scams covered by the banks in the last financial year. But he says banks may not cover a loss where a customer has been warned about a risky transaction, and they push on with it.

Banks claim they shouldn’t be responsible for all customer losses – instead arguing for a sustained effort to fight scams from government bodies, telcos, online shopping platforms, and the public. Banks say they are working on developing a consistent industry position, and are encouraging people to use PayID – an online system that allows the payer to see who they are paying before sending the money.

“Proposals for schemes which require banks to cover customer losses do not adequately take into account the incentive this provides financial criminals or scammers to target Australians,” the ABA spokesman says.

So far, the government appears sceptical of moves to make the banks pay. Financial Services Minister Stephen Jones last week said he didn’t support an approach where banks were “always” liable, saying that if banks always reimbursed scam victims it would create a “honey pot” for the scammers.

Jones is right to be sceptical of sweeping changes to make banks “always” liable for scams – that would clearly raise the risk of making scamming more appealing to criminals.

However, there is a convincing case for pushing banks and other businesses to beef up their anti-scam defences in other ways.

For example, the ACCC has called for banks to improve their systems designed to spot payments to scammers, while Jones has promised to introduce tough new industry codes for banks, telcos and social media platforms to reduce economic crime.

These codes will need to have teeth – including meaningful consequences for businesses that don’t comply – if they are to have an impact on the growing wave of online fraud and scams.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Investors should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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