FCA extends car finance scandal compensation plan as lenders push back

Britain’s financial regulator has extended the deadline for its motor finance redress consultation proposals after fierce opposition from lenders. 

Lloyds, Close Brothers and Santander and some smaller lenders have attacked Financial Conduct Authority proposals that could see the sector fork out £11billion in compensation and other costs.

Lenders question the Financial Conduct Authority’s methodology for calculating potential costs, which they say does not match a landmark legal ruling in the summer and risk ‘significant’ ramifications for the British economy. 

The FCA confirmed on Wednesday it has extended the consultation deadline until 5pm on 12 December. 

The regulator said it still expected to publish the results of the consultation in February or March of next year.  

It added: ‘It’s important we receive as much evidence as possible on specific concerns through the consultation as well as alternative suggestions if respondents don’t agree with our proposals.’

The FCA said industry feedback included questions around its methodology for calculating redress, the time period for the scheme, the rate of compensatory interest, how independent mechanisms will ensure confidence, how smaller firms can operate the scheme cost-effectively and how to prevent fraud. 

Under pressure: Nikhil Rathi is the chief executive of the Financial Conduct Authority

FCA has ‘nakedly taken the side of lenders’

Lenders have criticised the FCA’s ‘disproportionate’ redress scheme, which has compelled them to hike redress provisions. 

The proposed redress scheme is meant to compensate borrowers who were overcharged as a result of commission arrangements between car dealers and lenders. 

This week, the All-Party Parliamentary Group on Fair Banking accused the FCA of having ‘nakedly taken the side of lenders’ in its planned compensation scheme.

The APPG’s latest report accused the FCA of falling for ‘doom-mongering’ by lenders, some of whom have suggested a hefty compensation scheme would risk spooking investors and cause Britain’s economy damage. 

The APPG claimed affected consumers were due up to £15.6billion, as opposed to the £8.2billion to £9.7billion package forecast by the FCA. The AAPG alleged the figures from the FCA were based on data and estimates produced by the regulator in 2019. 

The group accused the regulator of being ‘influenced by the profit margins of the lenders’. 

It said consumers looked set to miss out on more than £4billion worth of compensation.

The group of cross-party MPs are concerned the scheme proposed by the FCA centred on complex calculations which lenders could exploit, while simultaneously acting as ‘judge and jury’ on customer claims. 

Following a Supreme Court ruling, on 7 October, the FCA unveiled its car loans compensation scheme after it found that lenders broke the law by failing to tell customers key information about commission payments pocketed by salesmen.

The regulator said there were around 14.2million cases where motorists should receive a typical payout of £700.

It confirmed car loans taken out as long ago as 2007 – or 18 years ago – were eligible for claims under the redress scheme. 

However, some car owners with older loans may not be able to secure the compensation they deserve if they no longer have the relevant loan documents. 

Lloyds Banking Group, which owns Britain’s biggest car finance provider Black Horse, was forced to increase motor finance claims provisions to £2billion, up from from £1.2billion previously. 

Santander UK scrapped the planned publication of its third quarter results last week, citing uncertainty in the motor finance sector, as bank chief Mike Regnier called for the government to consider stepping in to help mediate. 

Lender Close Brothers has also nearly doubled the sum of funds set aside for motor finance redress claims to £300million, while Barclays almost quadrupled its provisions to £325million.

Shanika Amarasekara, chief executive of the Finance & Leasing Association, said: ‘The FCA’s decision to extend the consultation is a step in the right direction. 

‘This issue warrants a considered process, and while nine weeks is still short for such a complex and consequential proposal, it’s an improvement on the original six.’

Some consumer groups and lawyers have accused lenders of attempting to frustrate fair compensation for the scandal.  

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