The investment fraud refund lottery – will your bank help you?

Scam victims tricked into financing dodgy investment schemes are being refused compensation for their losses by some banks and refunded in full by others.  

Banks have been accused of unfairly telling victims they have civil disputes, and therefore aren’t eligible for their money back under the existing rules.

Here, we explain why property investment scams are particularly problematic, and explore whether firms are ignoring evidence of fraudulent behaviour when rejecting claims. 

Fraud protections are changing

If you inadvertently transfer money to a scammer, known as authorised push payment (APP) fraud, the voluntary Contingent Reimbursement Model (CRM) code offers a safety net. 

However, if your bank decides you actually sent money to a legitimate business, not a scammer, your only option may be to resolve the dispute in court, often at great expense.

Much broader protections for scam victims will come into force on 7 October, under a new mandatory reimbursement scheme. 

• Find out more: increased protection for fraud victims

Investments schemes gone very wrong

Distinguishing between a scam and a civil case isn’t always clear cut, but we spoke to several legal and fraud experts who believe complex investment cases are being widely mishandled. 

Stuart McFadden, co-founder of the regulated claims management firm (CMC) Refundee, said they have been battling for years to get refunds for dozens of investors who collectively lost millions to investment schemes that bear the hallmarks of fraud. 

One company falsely claimed to have secured housing contracts that never existed, for example, meaning it set out to deceive from the start. 

It was offering a 'rent-to-rent' scheme, where properties are leased from landlords for a fixed period and sublet (e.g to a housing association) at a higher rate.

Shadow directors

Investors did initially get some returns, but within months the payments dried up and they were eventually told a ‘shadow’ director (someone unnamed on Companies House but working behind the scenes) had taken the money and run. 

Refundee says it discovered multiple investors were leasing the same properties and the original landlords it spoke to had never heard of the company supposedly acting as the middleman. 

Yet many banks told customers who lost tens of thousands to this scheme that they don’t have valid claims, because the company was in business for several years and they received some returns at the beginning.

Sign up for scam alerts

Our emails will alert you to scams doing the rounds, and provide practical advice to keep you one step ahead of fraudsters.

Sign up for scam alerts

Uneven treatment

Agonisingly, this means fraud claims associated with the same rogue schemes are being turned down by some banks and reimbursed in full by others. 

Though it is right that each case is assessed individually, legal representatives for victims say they see contradictory outcomes even when the facts of the cases are identical.

One victim, who didn’t wish to be named, told us she has been waiting since 2022 to find out if she has any hope of recovering the £16,000 she invested in a rental property investment scheme. 

While Metro Bank has fully refunded several victims of the same scheme, her bank has rejected claims and she is still waiting for the Financial Ombudsman Service (FOS) to make its final decision. She told Which?: 

The ‘legitimate purpose’ test

One major sticking point is the interpretation of the CRM code rule regarding the purpose of the payment. 

Under the rule, an APP scam is where ‘the customer transferred funds to another person for what they believed were legitimate purposes but which were in fact fraudulent.’

Representatives say some banks misinterpret this definition to dismiss claims unjustly, on the basis that the ‘purpose’ was property investment and if funds were used for this, it isn’t fraud, even in cases where investors were misled from the outset. 

Too great a burden

This seems unfair for two reasons. First, it ignores the fact that the ‘purpose’ is an investment (not simply to develop or rent property). Second, it places too great a burden on ordinary people to be able to investigate and prove exactly how their money was misused.

This line of argument is also applied in cases where victims paid an intermediary, instead of sending money to the rogue company directly. 

Banks have argued that the CRM code doesn't apply in these cases – because the ‘purpose’ was to pay an intermediary, not for fraudulent purposes – even though this scenario is not specifically ruled out in the rules. 

One fraud expert Which? spoke to is adamant that this is the wrong approach and has tried to help many victims fight their corner, by arguing that third-party intermediaries are often set up specifically and only to temporarily accept money for fraudulent companies.

Surely if the directors are charged with fraud…?

Shockingly, investors can be left in the lurch even in cases where company directors are charged with criminal behaviour. 

The Serious Fraud Office confirmed in January 2024 that the former company directors of Raedex Consortium, an authorised and regulated company, had been charged with fraud in connection with a nationwide car leasing scheme offered by ‘Buy 2 Let Cars’ and ‘Rent to Own Cars’. Raedex was the sole shareholder of both companies. 

The scheme operated for nine years and attracted investment of around £88m from hundreds of British savers. 

A trial date has been set for September 2026 and some banks have argued that the FOS should wait until the trial to reach its final decisions. 

Though CRM code rules do allow for firms to wait for the outcome of an investigation by a statutory body before making a decision, they do not require a criminal test to have been met first and victims shouldn’t be out of pocket for longer than is necessary. 

Will the new scheme help?

A new mandatory reimbursement scheme, effective from 7 October, replaces the old voluntary code. 

It means all firms offering Faster Payments will be liable to refund APP fraud victims, with sending firms and receiving firms splitting this 50:50. Firms can choose to apply a £100 claims excess, except where victims are found to be vulnerable.

Which? expects this scheme to result in fairer, more consistent outcomes for victims overall, however, we’re hugely disappointed that the PSR has caved to industry pressure to reduce the reimbursement cap from £415,000 to £85,000. 

This is particularly bad news for victims of high-value fraud, such as investment fraud or conveyancing fraud, as the cap applies per claim and multiple payments sent to the same fraudulent scheme are likely to be aggregated as a single claim.

Updated guidance for banks

The PSR is conscious that fraud cases are sometimes incorrectly dismissed as civil disputes, having recently published new guidance to help firms distinguish between the two (without setting any expectations on customers). For example, it specifically states that ‘Companies House registration in isolation may not be enough to support a view that the company is trading legitimately’. 

It has a broader definition of APP fraud than the CRM Code, though it remains to be seen whether firms will continue to swerve liability on the basis of the ‘purpose’ of the payment:

‘…where a person uses a fraudulent or dishonest act or course of conduct to manipulate, deceive or persuade a consumer into transferring funds from the consumer’s relevant account to a relevant account not controlled by the consumer, where:  • the recipient is not who the consumer intended to pay, or • the payment is not for the purpose the consumer intended.’

While it is unrealistic to expect a prescriptive list, as each case must be investigated independently, we will be monitoring progress to ensure PSR guidelines result in fewer fraud victims being told to pursue scammers in court.

Fighting your corner

Fraud complaints involving investments are often complex and can take a long time to unravel, but don’t give up. 

Banks and other payment firms must have strong evidence that yours is a civil dispute i.e. an investment gone wrong, rather than fraud. 

If your payment provider refuses to reimburse you, take your case to the FOS, giving as much evidence as you can (such as investment brochures, emails, screenshots and WhatsApp/text messages). 

It will consider all cases on their own merits, on the balance of probabilities, after assessing all of the evidence and arguments presented by both parties. 

• Find out more: how to take a complaint to the Financial Ombudsman