How to Claim Compensation for Unauthorised Payments

Unauthorised payments - transactions taken from your bank or payment account without your permission - can cause financial loss and distress. UK law provides protections and routes to seek refunds and, in some cases, compensation for losses arising from these unauthorised transactions. This article explains your legal rights, the process to claim a refund or compensation, key time limits, and how to escalate disputes if your bank or payment service provider does not act fairly.

What Are Unauthorised Payments?

An unauthorised payment is any withdrawal or transfer of money from your bank, building society, or other payment account that you did not approve. This may arise due to card fraud, identity theft, hacking, cloned cards, or scam activity such as being tricked into revealing banking credentials. It includes:

• Transactions made without your knowledge or consent.
• Payments arising from stolen or lost cards.
• Transfers made fraudulently using your online banking details.

Unauthorised payments are distinct from payments you have authorised but later regret or dispute; those disputes fall under different rules.

Your Legal Rights to a Refund

Payment Services Regulations 2017

The Payment Services Regulations 2017 (implementing the European Payment Services Directive (PSD2) into UK law) set out rights and obligations for banks and payment service providers in England and Wales. Under these rules:

• Your provider must refund all unauthorised payments promptly once you report them.
• You should be reimbursed for the amount taken, plus any charges or interest you've paid because of the transaction.
• Refunds are typically expected to appear in your account by the end of the next business day after you notify your bank.

Your provider can refuse a refund only in specific situations, such as where it can prove that:

• You authorised the transaction.
• You acted fraudulently.
• You were grossly negligent in safeguarding your card, PIN or online banking details.

Gross negligence is more than simple carelessness; it means failing to take basic, obvious precautions to protect your payment instruments or credentials.

Authorised Push Payment (APP) Fraud and Reimbursement

A particular type of unauthorised payment dispute arises when you are tricked into making a payment yourself - known as Authorised Push Payment (APP) fraud. This occurs when a scammer persuades you to transfer money to their account by impersonation, deception, or false pretence.

In recent reforms overseen by the Payment Systems Regulator:

• New mandatory rules require banks and payment service providers to reimburse eligible victims of APP fraud.
• These rules apply to payments made on or after 7 October 2024.
• Eligible losses up to a specified cap (for example £85,000) must be refunded by the provider, although some banks have introduced a £100 excess that the consumer may be required to cover on each claim.
• Vulnerable consumers may be exempt from the excess.

These reforms aim to strengthen protection for consumers misled into making payments under false pretences.

How to Claim a Refund or Compensation

Step 1: Identify and Report the Unauthorised Transaction

Check your bank statement regularly. If you spot an unauthorised payment:

1. Contact your bank or payment provider immediately by phone or secure messaging.
2. Follow up in writing or through your bank's secure online portal.
3. Clearly state that the transaction is unauthorised and that you request a refund under the Payment Services Regulations.

You may be asked to complete a form detailing how and when you became aware of the transaction.

Step 2: Refund Processing

Once notified:

• The provider should investigate and normally refund the unauthorised amount by the next business day.
• If interest or charges were incurred (for example overdraft fees), those should also be refunded.

Step 3: If Your Provider Refuses or Delays

If your bank refuses your refund:

1. Ask for a written explanation citing the specific reason for refusal.
2. Escalate internally by using your provider's complaints procedure.
3. If unresolved after eight weeks or if the response is unsatisfactory, you can complain to the Financial Ombudsman Service, an independent body that considers disputes between consumers and financial firms.

When reviewing complaints, the Ombudsman will consider whether the payment was truly unauthorised and whether the provider followed legal and regulatory requirements.

Step 4: Police and Fraud Reporting

If the unauthorised payment resulted from suspected fraud or criminal activity:

• Report it to the police (non‑emergency number 101) and obtain a crime reference number.
• Report the incident to Report Fraud (the UK's national reporting centre for fraud and cybercrime).
• Keep all correspondence and evidence, as this supports your claim and complaint.

Time Limits to Act

• Notify your provider as soon as you become aware of the unauthorised transaction; refund rights under the Payment Services Regulations usually extend up to 13 months from the date of the debit.
• Complaints to the Financial Ombudsman should generally be made within six months of receiving the final response from your provider.

Acting promptly strengthens your position, preserves evidence, and avoids missing key deadlines.

Common Issues and Practical Considerations

What if the Payment Was Made by Someone in Your Household?

If an unauthorised payment was made by somebody else you know (for example a family member), banks may treat this differently. Your provider may consider the transaction authorised if it was made with your card or credentials, even if you did not personally initiate it. In such situations, the Ombudsman may still consider the circumstances but outcomes vary.

Gross Negligence and Liability

If the provider alleges you were grossly negligent - for example by sharing your PIN widely or storing it insecurely - it may refuse a refund. The evidence must demonstrate behaviour significantly below reasonable standards of care. Gross negligence claims by providers are scrutinised closely by the Financial Ombudsman.

APP Fraud Excesses

Optional excesses introduced by providers under the new PSR rules may see consumers liable for a small deduction (for example £100 per claim) before reimbursement. This differs from core unauthorised payment refund rights.

Key Takeaways

If money is taken from your account without your authority, UK law gives you strong protections. Under the Payment Services Regulations 2017, banks and payment service providers must generally refund unauthorised transactions once you report them, including any charges or interest caused. In cases of Authorised Push Payment (APP) fraud, mandatory reimbursement rules may provide further protection, though providers may apply a modest excess. If your provider refuses or delays, you can escalate your complaint internally and, if unresolved, to the Financial Ombudsman Service. Acting quickly, reporting fraud, and keeping records are essential to securing refunds and potential compensation for distress or loss.

James William Steven Parker

James is the founder of UKLegalGuides.com and a former agent at the Ministry of Justice (UK). With a background in processing legal claims, he launched this platform to make the laws of England and Wales accessible to everyone.