Abstract
Authorised push payment fraud (‘APP fraud’) occurs when a bank customer authorises the transfer of funds from their accounts, under a false pretence set up by a fraudster. The UK mandatory reimbursement regime and the EU Proposal for the Payment Services Directive 3 present wholly different loss allocation models in response to APP fraud. This article explores the following question: how should losses be allocated between the customer who authorises the transaction and their financial institution? The classic experience in formulating loss-allocation rules for unauthorised fraud provides a case-in-point as to whether banks should bear the bulk of the losses for APP fraud. By examining the distinction between authorised and unauthorised fraud, this article presents a principled case of a loss-allocation model that reflects the concepts of fault and moral hazard. In summary, this article argues for a loss allocation model that considers customer fault, the absence of a fixed upper limit on customer liability, increased bank liability for banks that their duties, and the exclusion of exceptions for vulnerable customers. The proposed loss allocation model aims to strike a balance between customer protection and financial consequences for banks, advocating for a shared liability approach between customers and banks. Regarding the concepts of fault and moral hazard, this proposed model suggests specific duties for banks to prevent authorised fraud and addresses the issue of moral hazard by incentivizing customers to take reasonable care in identifying fraud patterns. This proposed model serves to provide a starting point for future research and policy development in this area.
Keywords: Authorised Push Payment (APP) fraud, mandatory reimbursement, Payment Services Directive (PSD 2 & PSD 3), loss allocation model, payments, financial regulation
How to Cite:
Shum, N., (2025) “Authorised Push Payment Fraud: Theorising a Loss Allocation Model”, UCL Journal of Law and Jurisprudence 14(1), 43-69. doi: https://doi.org/10.14324/111.444.2052-1871.1988
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