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  • Writer's pictureElaine Hua

A Potential New Landscape for Authorised Push-Payment (APP) Fraud Victims

by Elaine Hua on 12/01/23

Introduction

Have you ever picked up a call from a Barclays number where the person on the other side of the phone pretends to be from Barclays Bank? Watch out, it could be an APP fraud! In the first half of 2022, £609 million was stolen in fraud, with £249.1 million being Authorised Push Payment (APP) Fraud, a type of fraud where the victim is deceived into believing in the fraudster as a trustworthy payee and making the transfer. APP Fraud has been the most predominant fraud crime in the UK in recent years, especially since COVID, causing millions of citizens to lose their life savings. By the time the scam is discovered, usually the money is already unrecoverable. However, the Court of Appeal’s decision in Philipp v Barclays [2022] could potentially change the landscape in APP frauds, extending the Quincecare duty to everyday customers, and therefore granting victims of APP fraud possible claims against the bank and greater possibility to recover the amount. It indicates the court’s determination to protect consumers by imposing more duties on the bank.

What Duty Does the Bank Owe to Us ‘customers’? What is Quincecare Duty?

If you opened a bank account for your money, you automatically become a customer to the bank who owes you a duty. One of the most important duties of the bank is to obey and honour the customer’s mandate: in simple words, if you asked your bank to transfer money to another account, the bank must execute this command (mandate). However, aside from this duty, the bank also has the duty of exercising reasonable care in executing the customer’s mandate. In blunt words, if an ordinary banker senses that the customer’s mandate is suspicious and could potentially be a scam/ a transfer against the true will of the customer, they must block the transaction to avoid the financial loss of the customer. If the bank thinks the transaction is suspicious, but still acts recklessly or ignores the situation, it would be a breach of the implied terms in the contract between the bank and its customer. This rule was first established in the landmark case, Barclays v Quincecare [1992], therefore the ‘Quincecare duty’.

Why is Philipp v Barclays Important For Authorised Push-Payment (APP) Fraud Victims?

Quincecare's duty is an important form of protection for customers. However, this protection was never extended to everyday consumers. Prior to the 2022 case, Philipp v Barclays, Quincecare duty was only referred to in ‘agent cases’, where someone (the fraudster) is acting on behalf of corporate customers. While the government has installed regulations to compel banks to refund innocent customers, the rate of APP fraud victims being able to refund their money is lower than 50% (even though it is obvious that over 50% of the time those victims are indeed innocent). Philipp v Barclays is monumental because it changes this landscape and now extended Quincecare duty to APP fraud victims.

What happened in Philipp v Barclays was that a couple was tricked by fraudsters, who pretended to be financial regulators, to genuinely believe that their money in Barclays was in danger and that they should transfer the money to an account in the UAE. When the scam was uncovered, the money was unrecoverable. Philipp brought the claim against Barclays for breach of Quincecare duty.

The Court of Appeal in Philipp v Barclays clarified that Quincecare duty, a duty on the bank to exercise duty of care to investigate which was previously only considered in corporate agent cases, could be applied to individual consumers! The reasoning that the court provided was that the central test in applying Quincecare duty is whether a reasonable banker would find the transaction suspicious and be put ‘on inquiry’: this duty does not, and should not differ between individual and corporate customer. Therefore, this is not an extension of Quincecare duty.

Is Philipp v Barclays Rightly Decided? And What Happens Next?

The landmark decision by the Court of Appeal sparks debates among bankers, media, and political commentators. (However, we must be aware that, currently the case is appealed to the Supreme Court and there is a possibility that the Supreme Court overturns the Court of Appeal’s decision). The debates centre around whether the decision imposed an onerous duty on banks to check every single transaction when there are millions and millions of them that goes through the banks everyday? Did the law put an unreasonable amount of burden on the bank just because there are unintelligent people out there who cannot take care of their money?

A strong argument for the decision is that by imposing duty on the banks to refund customers who are grossly negligent, it compels and incentivises the banks to install more precautionary measures to prevent people from being scammed in the first place. After all, the bank is the one organisation that has the easiest access to its customers and is at the frontline of protecting them. For example, instead of executing the transfer, the bank may take an extra step (e.g. calling) to confirm that the transfer is legitimate or to raise more awareness about the common types of scams to customers when they open an account with them.

On the other hand, some are afraid that by allowing Quincecare duty to apply to normal everyday customers, it will open the floodgate and cause customers who are not completely innocent (i.e. not completely without responsibility when they are being scammed) to be able to get refunds from banks. Whether this will be a valid concern and where the court will set the boundary remains a mystery for the future to find out.

What does Philipp v Barclays mean for Society?

Philipp v Barclays means that the customers will be better protected under this ‘new regime’, both in the sense of getting refunds from the bank after the scam, and to be prevented from being scammed. Protecting customers has always been the central goal of banking law, and when facing a new threat from criminals who seek to exploit the lack of awareness of innocent people, banks and financial regulators should work together to bring more protection to them.

What should you do if you become a victim of APP Fraud?

When facing an APP Fraud, the first thing to do is to immediately report the scam to the bank to block any money that has not yet been transferred out. If the money is unfortunately unrecoverable, victims can complain to the bank and request for a refund. If the bank turns down the refund, remember that Quincecare Duty is now applicable to individual customers, victims can complain about this to the Financial Ombudsman Service, a free government organisation, which will assist victims to discover their rights against the financial services in the UK (i.e. banks).


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