Putting banks in charge of refunding all scam victims would be "like asking a fox to guard the henhouse", MPs have warned.
The Treasury committee, a powerful group of cross-party MPs, warned plans to protect scam victims had been “unacceptably delayed” until 2024, despite hundreds of millions being lost to criminal gangs every year. It now wants to see all victims automatically reimbursed by the end of the year.
The committee first called for customers to receive automatic refunds in cases where banks approved payments to fraudsters, known as “authorised push payment fraud”, in 2019.
In September last year the bank transfer watchdog, the Payments Systems Regulator, tabled plans for banks to reimburse losses over £100 within two days of the fraud being reported – but the requirement will now not be fully implemented until 2024.
MPs on the Treasury committee also said proposals to hand responsibility for implementing mandatory reimbursement to a separate body - Pay.UK - which is guaranteed by the financial services industry - are a conflict of interest.
Pay.UK will be responsible for ensuring the very banks and building societies that are its own guarantors pay out large sums to reimburse consumers, the committee added.
Harriett Baldwin, Conservative MP for West Worcestershire and chairman of the Treasury committee, said victims of fraud had waited “far too long for a fair and functional scam reimbursement scheme”.
She said: "While these new proposals are a step in the right direction, the way the regulator plans to implement them is fundamentally flawed. Putting an industry body in charge of reimbursing scam victims is like asking a fox to guard the henhouse.
"The regulator needs to take back control of the reimbursement process, rather than leave it in the hands of an industry body which is inherently conflicted."
MPs have given the regulator a deadline of the end of 2023 to ensure mandatory reimbursement is fully implemented in the banking industry.
The move will also rely on the watchdog being granted new powers by the Financial Services and Markets Bill, which is making its way through Parliament.
A PSR spokesman said: “All feedback received will be considered carefully before we make any final decision on the best course of action to make sure people are properly protected from these devastating scams. We will publish our final position in May 2023.”
Fraud is the most common crime in England and Wales and victims lost more than £609 million in the first half of 2022, according to the banking body UK Finance. “Authorised push payment fraud” accounted for £249 million of losses.
Some high-street banks have signed a voluntary industry agreement to reimburse “blameless” customers who fall victim to scams, but refund rates are low. Of the £583m lost in 2021, less than half was returned to customers.
Britain's biggest banks have repeatedly called for a “polluter pays” approach to scam reimbursement which would ensure telecom giants and social media platforms shoulder their share of the cost.
Facebook, Instagram, Google and telecom companies currently pay nothing towards losses, despite more than three quarters of scams taking place on social media, auction sites or dating apps, according to Barclays data.
Writing in The Telegraph last year Sian McIntyre, head of economic crime at Barclays said companies which enabled scams on their platforms or services should be “putting money in the compensation pot”.