A scams bill that protects banks over victims is the biggest scam of all

When the Albanese government released draft legislation to deal with scams last week, it no doubt hoped victims would rejoice. “Massive fines for banks, telcos and tech giants”; “Compensation for victims”: these were the headlines the policy is intended to generate (and partially did). Then, this week, independent Senator David Pocock stood before a press conference at Parliament House flanked by two such victims, who were telling a very different story: one of legislation the banks like more than they do.

That’s because the federal government has refused to follow the British model – which comes into force in a few weeks – in which banks are required to reimburse scam victims in most cases. As it stands in Australia, the situation is almost exactly reversed: banks just about never reimburse scam victims.

Illustration: Simon LetchCredit: Simon Letch

A 2022 ASIC report found our big four banks only refund about 4 per cent of losses. They needn’t do more because, for the most part, scam victims are handing over their money willingly, albeit under false pretences.

When a customer asks a bank to transfer money, the bank’s job is to carry out those instructions, not ask questions. Ergo, say the banks, it neither makes sense nor is it justice for them to wear the loss for scams when they are not at fault.

But hereabouts things get a little fuzzy. Take the case of David Sweeney, whose father lost $1 million in an investment scam. His father authorised those payments, so by the banks’ reasoning the fault was his. For five years, the relevant banks refused to accept any responsibility.

Then Sweeney lodged a freedom of information request and discovered a letter from ASIC to the banks warning them of this specific scam, and requiring them to “prevent further transfers being made by Australian investors”. But the banks simply ignored that letter and explicitly denied ever receiving it until it was shown to them. Only then did they reimburse. Evidently, then, banks shouldn’t be the ones deciding whether they’re at fault.

Another ASIC report, from last year, found that our big banks tended to take a “narrow” interpretation of what is their fault. That’s possibly why their overall approach to scams was, in ASIC’s phrase, “highly variable” and “less mature than expected”. Only one bank had a documented bank-wide strategy. To be fair, that is beginning to change with banks agreeing to invest in anti-scamming measures under the Scam-Safe Accord. But the fruits of all that won’t be known until next year.

The British model sees these things as connected: as long as banks decide whether they’re at fault, and as long as they don’t bear the losses for scams, they have no real incentive to do terribly much about them. Make them pay, though, and you’ll see them get pretty good pretty quickly at preventing scam payments.

The government, however, insists that if people know they will be reimbursed, they will cease to be vigilant. That, in turn, will make Australia an attractive target for scammers, and the problem will get worse. Australia will become, to adopt the term commonly used, a “honey pot”.

But this overlooks that there is already plenty of honey in Australia’s pot. Last year, Australians lost $5200 per minute to scams. By comparison, Brits lost about $4400 per minute despite having more than two-and-a-half times the population. Where our major banks reimburse a maximum of 5 per cent of losses, the big British banks reimburse between about 50 and 75 per cent. Clearly, forcing Australian customers to bear their own losses isn’t saving us.

There are also plenty of examples of British banks who, having increased their rates of reimbursement between 2022 and 2023, saw scam losses decrease, sometimes quite significantly. Take NatWest or HSBC, both which saw losses fall more than 30 per cent. Or Santander, which saw them fall nearly 50 per cent. Of course, there could be many reasons for such results, and not all banks had them. It doesn’t definitively prove the incentive model works. But it does suggest the “honey pot” effect is feeble or non-existent. It may even be exactly wrong. It’s hard to see why the Albanese government has such faith in it.

The banks have a better argument when they point to other big players who contribute to this problem, who could help solve it and should therefore be held accountable. Here, they’re thinking of social media platforms constantly serving up scam ads. Or telecommunications companies, whose services are being used to send scam texts, sometimes showing up in the same thread as the texts your bank has genuinely sent you over years. If we’re talking incentives, where’s the incentive for those giants to lift their game?

Hence, the government’s solution: create binding codes on all these companies that would detail what is required of them. When they fall foul of them, scam victims could seek compensation. In this way, the cost, and the incentives, fall where the fault does. If the bank failed, it pays. If the tech or telco companies did, they pay. And if the customer was grossly negligent, they lose out.

I see the appeal, but also a major flaw. It requires customers to make a complaint, then ultimately submit themselves to some tribunal-like body – possibly after paying a fee – which will then look into the case and determine who is responsible and to what extent. It’s asking people who may have lost their life savings to wait for however long that takes, at whatever cost it demands, for a shot at compensation. The draft bill even considers appeals to the Federal Court. Imagine.

What if, instead, we merged the models? Banks reimburse in the first instance. Unless customers have been manifestly negligent, they get their money back quickly and get on with their lives. Then, if the bank thinks the telcos or tech companies are to blame, they can take the matter to the tribunal. Eventually, companies will learn the ropes and know instinctively who should pay what. But the price of learning that won’t fall on the destitute. Because if we must have a process like this, it should at least put the burden on those who can most bear it, and give relief to those who most need it.

Waleed Aly is a regular columnist.

The Opinion newsletter is a weekly wrap of views that will challenge, champion and inform your own. Sign up here.