Banks’ new four-day hold on suspicious payment sparks mortgage concerns

The UK banking sector is set to implement new regulations allowing banks to place a four-day hold on suspicious payments starting at the end of October. The government’s intent is to reduce the rising tide of fraud, which now accounts for a third of all crime in England and Wales. However, the introduction of this extended pause has stirred unease among those involved in high-stakes financial transactions, particularly in the property market, where timing is crucial.

Under the new rules, banks will have the right to delay any payment for up to 96 hours if they have reasonable grounds to suspect fraudulent activity. This represents a significant shift from the current protocol, which mandates that payments must be processed or declined by the end of the next business day.

Ben Donaldson, Managing Director of Economic Crime at UK Finance, believes the power will be used “fairly sparingly” and only in cases involving complex scams such as investment or romance fraud.

“This is really relevant to cases of investment fraud and romance fraud where there is psychological manipulation of the victim,” he noted, suggesting that the rule will be primarily focused on instances where customers are vulnerable to coercion.

Despite these assurances, the changes have sparked criticism from some industry groups. The Society of Licensed Conveyancers has expressed concern over potential complications in the property market, where delays in transferring large sums could disrupt housing transactions. Mortgage payments, which often need to be transferred on a precise schedule, are particularly vulnerable to the new hold. If a bank flags a payment as suspicious, even legitimate transactions could be frozen, risking delayed completions and financial penalties for homebuyers.

This sentiment was echoed by other financial professionals who fear the delays might inadvertently penalise ordinary customers. “A four-day freeze could be catastrophic for people who are buying a home,” a representative from the Society of Licensed Conveyancers said, stressing that mortgage and property transactions often have little room for error when it comes to timing.

To mitigate potential fallout, banks are required to inform customers when a payment is being held, provide clear instructions on what the customer needs to do to lift the freeze, and pay compensation if the delay results in additional costs. While these measures aim to protect customers, they do not eliminate the possibility of unintended disruptions for those in the middle of time-sensitive transactions.

The government, however, remains steadfast in its stance. Economic Secretary to the Treasury, Tulip Siddiq, defended the move, stating, “Hundreds of millions of pounds are lost to scammers each year, targeting vulnerable communities and ruining the lives of ordinary people. We need to protect these people better, which is why we are giving banks more time to investigate suspicious payments and break the criminal spell that scammers weave.”

The rules will come into force a few weeks after the introduction of a stricter mandatory scheme on fraud compensation. Those new powers, which come into force today, will see fraud victims receiving up to £85,000 in refunds from banks within five days of an authorised push payment scam.

The maximum compensation has been reduced from a previous proposal of £415,000.

Industry analysts will be closely watching how the new regulations impact both fraud prevention and customer experience. The broader implications for the housing market, in particular, will become clear only once the policy is in force. With mortgage payments accounting for a significant portion of the UK’s financial landscape, any sustained disruption could provoke a re-evaluation of the balance between customer protection and operational efficiency.

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