Mercedes-Benz has become the fourth group to challenge the £9.1 billion consumer redress scheme imposed by Britain’s financial regulator on the motor finance industry over the misselling of historic car loans.
The FCA’s redress programme, launched at the end of March, is designed to compensate motorists who were mis-sold car finance through hidden commission arrangements between 2007 and 2024.
The FCA has put the total cost of the scheme at £9.1bn covering 12.1 million agreements, with average payouts of around £830. Roughly £7.5bn is expected to go directly to customers, with the remainder covering administration costs such as tracing buyers, processing claims and making payments.
Challenges mount against FCA plan
A spokesperson for the Financial Conduct Authority (FCA) confirmed to AM: “We have received challenges from three lenders in addition to the challenge from Consumer Voice, represented by Courmacs Legal. We are considering our approach and will set out more later this week.”
Consumer Voice argues the scheme does not go far enough and could leave drivers short-changed, claiming the methodology used to calculate compensation risks underestimating the true financial impact on borrowers, particularly due to assumptions around interest rates and losses.
The FCA had hoped the first payments to customers, who could get an average payout of around £830 per vehicle loan agreement, would start this year. However, any legal challenges could delay the compensation process.
Only last week, the regulator urged law firms and claims management companies involved in any challenge to its motor finance compensation scheme to consider the impact on their clients, warning that legal action could delay redress for consumers who have already waited more than two years.
Banks hold back from appeals
The Finance & Leasing Association (FLA) confirmed earlier this week that its members would not challenge the motor finance redress scheme, despite ongoing concerns over aspects of the proposals. It declined to make any comment on the news of the latest challenges.
Banks including the finance arms of vehicle manufacturers have collectively set aside billions of pounds for compensation.
Sky News reported first that the finance arm of Mercedes-Benz planned to challenge the scheme and that Volkswagen was expected to follow suit. Reuters also reports that BMW had reviewed the scheme and believed it could provide the fastest and easiest route to resolution for customers.
In February, the FT reported that the regulator was preparing to exempt loans provided by car makers’ in-house lenders due to the tied nature of the agreements although that did not feature in the final scheme.
A recent report by investment bank RBC Capital Markets reckons that around 42%, or £3.8bn, is expected to fall on the motor finance divisions of manufacturers. After examining the latest filings by manufacturers however, it estimated that collectively they have set aside just £803 million, leaving a shortfall of around £3bn.
Ensure you always receive AM insights. Make us a preferred source of news on Google