- Group says plan does not reflect actual losses or proportionate outcome
- Lenders argue ‘unfairness’ test doesn’t match Supreme Court judgement
Another bank has criticised the City watchdog’s plans for billions of pounds to be handed out in compensation related to the car finance commissions scandal.
Close Brothers hit back at Financial Conduct Authority proposals that could see lenders pay out £11billion in compensation and other costs.
The lender was forced to increase the amount of cash it has set aside to cover costs related to the scandal, hiking provisions by more than 80 per cent from £165million to £300million.
It echoed complaints made by Black Horse lender Lloyds, which has raised the amount it set aside to cover car finance payouts by almost 70 per cent to £2billion.
Close Brothers told shareholders the increase in its compensation pot ‘reflects a greater likelihood that more historical cases, particularly those involving Discretionary Commission Arrangements, would qualify for redress, as well as the possibility of the proposed redress methodology resulting in higher compensation levels than reflected in some of the group’s previous range of scenarios’.
Reserves: Close Brothers has hiked car finance compensation provisions by more than 80%
It also reiterated concerns raised by Lloyds about the FCA’s methodology for proposed redress, which the lender says does not ‘appropriately [reflect] actual customer loss or [achieve] a proportionate outcome’.
It also claims the FCA’s proposed approach to assessing ‘unfairness’ does not align with a landmark Supreme Court judgement.
The Supreme Court’s ‘Johnson’ judgement in August, which was seen as a partial victory for lenders at the time amid fears of even higher payouts, laid out the test for ‘unfairness’ with respect to car finance commission agreements.
The court said that to prove ‘unfairness’ in the case of a historic agreement, multiple factors would have to be present, such as the payment of commission being undisclosed and the commission being of a certain size.
Non-disclosure of commission is not, in the Supreme Court’s view, enough on its own to show unfairness.
This is Money understands that lenders’ frustration with the FCA methodology comes from an apparent disparity with this judgment.
The FCA instead says only one of three factors need to be in place for a customer to claim redress; that there was a direct commission arrangement (DCA) in place, that the customer paid commission of more than 35 per cent on the loan, or that there was a tie-up between a dealer and a lender.
Lenders fear the result will be that nearly every finance deal agreed with a DCA over the covered period would be eligible for payouts.
Among non-bank lenders, The Times reported this week that BMW is seeking an urgent meeting with the Treasury about the issue.
Close Brothers on Tuesday said it would ‘continue to engage with the FCA in respect of these points’.
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
InvestEngine
InvestEngine
Account and trading fee-free ETF investing
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
Compare the best investing account for you
#Close #Brothers #ups #car #finance #compensation #pot #300m #hits #redress #plan
