Financial Fraud: Vulnerable People

Lord Vaux of Harrowden Excerpts

Thursday 2nd December 2021 Grand Committee

[Lord Vaux of Harrowden (CB)]

I congratulate the noble Lord, Lord Sharkey, on securing this short debate on what is becoming an increasingly serious problem, as he so eloquently set out. I at last detect that the Government are starting to take it more seriously, and that is greatly to be welcomed, but we have a very long way to go.

This debate is about protecting vulnerable people from fraud, but I make a similar point to the noble Lord, Lord Davies. The reality is that we are all at risk from fraud. The impact of fraud is not only financial; it can leave people feeling stupid, ashamed and under attack, as they are continuously bombarded with emails, calls and texts, leading to serious anxiety and depression. That can be especially true of people who are more sophisticated; they can feel particularly stupid, which is unfair, and may not report it because of that feeling of shame. A large proportion of fraud is not reported. Nobody should feel shame about having been scammed; fraudsters are very clever at finding vulnerabilities.

Why is it so easy for fraudsters? I think the simple truth is that there is a whole range of parties who facilitate it, and who have no incentive to prevent it. Here are just a few examples. We have already heard about social media and other tech giants, which are paid by fraudsters to advertise fake investment or pension deals, as well as providing the platforms that allow fraudsters to contact and groom potential victims. The obvious question for the Minister is why the Government have agreed to include user-generated fraud in the online safety Bill but not frauds where the companies have actually been paid by the fraudsters. I read just this morning that the Prime Minister has said that the Bill will force the tech giants to remove adverts that promote people smuggling. If we can do that, why on earth can we not also force them to remove fraudulent investment adverts? This is just wrong, and I urge the Government to think again about this obvious gap. The tech giants should have a clear duty of care and liability to their users for any fraud that they facilitate.

Telecoms companies enable the scammers to bombard us with calls and texts. We probably all suffer this every day. They have no incentive to stop it—they are paid by the scammers for those calls and texts. Further, they continue to allow the spoofing of caller IDs. It is not only being scammed that is traumatic; the feeling of being constantly under attack causes a lot of anxiety. When will we see action to reduce this torrent of calls and texts? Can we not use the Telecommunications (Security) Bill to that effect? You could put out regulations under that to have a go at solving this problem.

The banks provide the means by which the scammers receive the stolen money. Some banks have made real efforts—in particular, the Confirmation of Payee process is a major step in the right direction—but fraudsters are still able to transfer the stolen money and only a relatively small proportion is reimbursed under the voluntary code. It is shocking that we are not told which banks are behaving worst in this respect. Why do we not publish those league tables?

It may be that the payments system itself aids fraudsters: instantaneous payments allow the money to be whisked away through multiple accounts and abroad, or into untraceable cryptocurrency, before the victim has even realised they are a victim, by which time it is too late to do anything about it. Have the Government considered slowing payments down, particularly when making a first payment to a new payee?

As the noble Lord, Lord Sharkey, mentioned, I understand that the Government are at last proposing to make reimbursement mandatory for authorised push payment frauds. However, I have said before that it would make more sense to make the receiving bank—the bank that has handled the stolen money for the fraudster —liable for repaying the money. That would give a real incentive to banks to stop their accounts being misused by fraudsters or their mules. On that latter point, I would be interested to hear from the Minister what the Government are proposing to do about those mules, who are often young people who themselves have been conned into laundering the stolen money.

Whatever we do, it is critical that any victim reimbursement process is clear and simple and has a single point of contact so that it does not add to the trauma that victims experience. The Financial Ombudsman Service has been ruling against banks in over 70% of appeals, which shows that the current system is simply not working. Banks try to push the blame back on the victim, which just adds to the trauma. My own view is that the victim should apply to, and be reimbursed by, their bank, which should recover automatically from the receiving bank, and it would be for the receiving bank to attempt to recover from the fraudster or those who have facilitated the fraud—the social media or telecoms company, or whoever. Section 75 of the Consumer Credit Act works broadly in a similar way. Could that not be a precedent?

Why are so few frauds investigated or prosecuted? Again, this adds to the trauma; it is traumatic if you do not feel that you are being taken seriously by the authorities. I suspect that the poor investigation and prosecution record is down to a combination of insufficient police resources, inadequate specialist training and a lack of appropriate technology. According to the Victims’ Commissioner, only about 2% of police resources is directed against fraud, despite—according to the Government’s own numbers—fraud being 42% of all crime against individuals. That is a huge disparity: 2% to 42%. Action Fraud would be better named “Inaction Fraud”—it is farcical. What plans do the Government have to make improvements in all those areas?

Fraud is also covered by a whole range of government departments: DCMS, the Home Office, the Treasury, DWP and the Foreign Office, among others. I wonder whether that fragmentation contributes to the problem. Would it not be helpful to have one Minister who was given full oversight to ensure that fraud is covered holistically, not just piecemeal?

Finally, I am delighted that yesterday the House approved my proposal for a committee of special inquiry into digital fraud. I record my thanks to the noble Lords, Lord Young of Cookham, Lord Stevenson of Balmacara and Lord Vaizey of Didcot, and the noble Baroness, Lady D’Souza, for their support in that process. I hope that the committee will be able to provide valuable insight into the problem and to make practical and achievable recommendations to assist the Government in solving this scourge, and I hope the Government will be receptive.