Scams| Scams

When Russia invaded Ukraine, Alina Bondaranko* agreed to safeguard her brother’s savings. Although she had arrived in the UK just before war broke out, her brother, who is fighting age, was forbidden from leaving his country. Fearing Ukraine’s banks might collapse, he transferred his money to his sister’s bank account.

Within weeks it was stolen in an online scam, along with Bondaranko’s own funds, and a loophole in consumer protection means she was ineligible for a refund from her bank.

Bondaranko is a cleaner for her 1-year-old daughter. She has limited English proficiency. In an effort to increase her income, Bondaranko responded to a Facebook advertisement offering two hours of home-based work per day. She was contacted by an agent from a fake investment firm who told her she would be buying and selling stocks, and charged her £250 for an online training course.

She was taught investment strategies by the agent and she gained her trust through many hours of video and phone calls. He convinced her, over many phone calls, to open a Revolut account in her name and to transfer her Barclays savings.

She was then tricked into making five debit-card payments totalling £32,000 to a cryptocurrency exchange platform. The crypto account belonged to the fraudster and the siblings’ life savings vanished.

Fraud victims who have been tricked into authorizing payments by bank transfer (known under APP fraud) are protected through the contingent reimbursement code (CRM). This voluntary program requires banks to reimburse customers who are not negligent. In almost all cases, vulnerable customers should be refunded.

The CRM does NOT cover payments made by cheque, direct debit or card. Bondaranko could have been considered vulnerable if she had been directed to transfer funds via Chaps (the faster payments system) to a crypto exchange. Revolut may have compensated her, although it isn’t signed up to the code but claims to adhere to its spirit. Because she paid with a debit card, she wasn’t.

The CRM was launched in 2019 because electronic “push payment” transactions were inadequately protected when compared to other payment methods. Credit card users have the right to file a claim under section75 of the Consumer Credit Act for any trader who is not in compliance with contract.

Visa and Mastercard offer a chargeback program for disputes in debit card transactions. However, the direct debit guarantee requires that banks and building societies refund any contested payments not made in accordance to direct debit rules.

These schemes, however, were not created prior to the surge in fraud online and do not always cover authorized payments to scammers. Revolut attempted a chargeback on behalf of Bondaranko, but, as she had sanctioned the payment to a legitimate crypto firm, albeit unwittingly into a fraudster’s wallet, it was refused.

Bondaranko’s ordeal suggests there is a gaping hole in consumer safeguards as pressure grows on financial institutions to refund all fraud victims. Scammers are becoming more sophisticated and prolific. The idea behind CRM is that banks should use their criminal knowledge to warn customers who attempt uncharacteristic transactions.

The banks are supposed to face high compensation costs if they fail this task. However, less than half the victims of APP fraud were refunded last fiscal year. The Payment Systems Regulator oversees electronic transfers and has opened a consultation to determine whether refunds should be mandatory for victims of APP fraud. There aren’t any updates to the regulations that protect Cardholders, such as Bondaranko.

TThe company that defrauded Bondaranko had laid the groundwork to scam potential customers. It shares the same trading name with a trusted US investment platform. The website has detailed financial pages and Trustpilot pages that are full of 5-star reviews. However, closer inspection reveals it to be fake.

The Action Fraud hotline in London, run by the City of London Police, reported last month an epidemic of fraudulent investment ads via social media. More than £890,000 was lost to fraudsters operating “get-rich-quick” scams in the 2021/22 financial year, an increase of 49.5% on the previous 12 months.

Criminal gangs pay social influencers to promote their ads and trick respondents with professional-looking websites. Sometimes, these sites are cloned from well-respected firms and used for social engineering.

Victims are commonly asked to “invest” via crypto exchanges. They may be asked to first transfer the money to Revolut, an e-money institution that isn’t subject to the same regulations and more used to processing large amounts for customers.

In Bondaranko’s case, Barclays initially blocked her payments to the new Revolut account but, primed by the scammer, she assured her bank they were genuine. Barclays offered to reimburse half of the amount she had stolen after making contact with the victim. Observer.

Revolut, who did not question the transactions was also contacted. Observer However, it refused to reimburse her. However, it changed its mind when informed of Barclays’s gesture.

It says: “Since March, Revolut has helped more than 250,000 Ukrainian refugees gain access to money and payments services, giving those fleeing the conflict the ability to easily access their money. After considering Ms Bondaranko and her family’s circumstances, we have reimbursed half of the funds she lost to scammers as a gesture of goodwill.”

More people will likely be tempted to join scam schemes promising generous returns due to the cost of living crisis. According to the Payment Systems Regulator, Observer To encourage greater prevention and detection, the government would require that firms reimburse victims of APP fraud once it had been updated.

There are no plans to increase protections for victims of scammers who pay by card. The Financial Conduct Authority, which regulates banks, says: “We expect the firms we regulate to effectively guard against financial crime and to treat their customers fairly. If a customer is unhappy with how a firm has treated them, and has filed a complaint, they should refer the matter to the Financial Ombudsman Service.”

* Name has been changed