Banks will be mandated to compensate fraud victims up to $500,000 and implement new regulations to combat scammers as part of a series of measures announced on Wednesday.
This comes in response to government demands to enhance customer protections or face increased regulation, following the loss of hundreds of millions of dollars each year by Kiwi victims to scammers.
The changes involve implementing new technology that detects risky or unusual transactions by analysing a customer’s banking history, as well as granting the ability to freeze payments and suspicious accounts.
The New Zealand Banking Association said it is introducing a set of new protections aligned with international best practices, which will be implemented by November. These measures include:
- A Confirmation of Payee service to verify that the recipient’s name matches the account number.
- Pre-transaction warnings for certain payments.
- Detection of high-risk or unusual account transactions, along with the capability to block or delay payments.
- A 24/7 reporting channel for customers who suspect they have been scammed
- Sharing information about scammer accounts with other banks to help prevent criminal activity and freeze funds where appropriate.
Under the new fraud reimbursement rules, victims who were deceived into authorising payments to fraudsters could be reimbursed up to $500,000, as long as they meet specific criteria.
The compensation would exclude international money transfers, third-party payment services, and social media purchases. It would only be applicable if a bank failed to fulfil the new scam prevention obligations described above.
“This is an important win for bank customers, who have been advocating for some time for better recognition from banks of the role they play as the final gate between a consumer and a scammer,” Commerce and Consumer Affairs Minister Scott Simpson said.
Consumer NZ chief executive Jon Duffy noted that many of the measures announced today are already standard practice overseas, highlighting that New Zealand banks have, until now, fallen short in adequately addressing the rise in scam activity.
While the progress was highly encouraged, Duffy cautioned customers that the new measures do not guarantee reimbursement if they fall victim to a scam.
“Banks will not be liable if they make reasonable efforts to alert a customer to risks. Customers will need to pay attention to warnings from their bank about risky transactions and be cautious if confirmation of payee cheques returns no match,” Duffy explained.