The Financial Conduct Authority has just announced its finalised plan for the UK’s motor finance redress scheme, compensating car buyers for missold point of sales car loans.
The compensation scheme will now cost motor finance lenders around £7.5 billion in redress, down from the £8.2bn initially expected as the FCA’s draft plan went to consultation.
There will be 12.1 million finance agreements sold between April 6, 2007 and November 1, 2024 that are eligible for compensation, down from 14.2m at the consultation stage.
“It’s time now for lenders to put right that they’ve broken the law,” said FCA chief executive NIkhil Rathi, when asked in a media briefing which Automotive Management attended whether he expects firms to file a judicial review of the plan.
Rathi hopes firms will crack on with delivering redress to car buyers to ensure payouts happen this year and the majority are done by the end of 2027.
ith the additional administration costs involved, the entire scheme is forecast to cost the motor finance industry £9.1bn, down from the £11bn initial predicted.
“Our final approach is fair for consumers and proportionate for firms,” said the regulator’s announcement.
“We have tightened eligibility so only those treated unfairly receive compensation. Agreements involving minimal commission or zero APRs will not receive redress.
“Where a lender can prove there were visible links with a manufacturer and dealer, a contractual tie alone will not trigger compensation. The threshold for high commission cases has been modestly raised.”
Following industry feedback, the FCA will implement two schemes, one covering April 6, 2007 to March 31, 2014 and one from April 1, 2014 to November 1, 2024. If the earlier period is subject to legal challenge on these grounds, redress for consumers with agreements from April 2014 shouldn’t be delayed.
Without these schemes, cases through the courts would cost the industry an additional £6bn, the regulator said.
“Firms owe liabilities from 2007. If complaints from that date were not covered they would need to be dealt with individually by firms, the Financial Ombudsman Service and through the courts, resulting in higher costs, lengthy delays and greater uncertainty.”
Cases that involved minimal commission, of up to £120 for finance agreements in the first scheme and up to £150 in the later period, will be deemed fair and ineligible for compensation, as will finance agreements which were 0% APR. That will be positive news for carmakers’ captive finance houses.
More follows shortly…