The Financial Conduct Authority has set out some of the factors it will consider if it launches a UK-wide consumer redress scheme as part of its review into car loans commission.
The regulator said it will confirm within six weeks of the outcome of the Supreme Court case, which is hoped to be announced in July, whether it does plan to introduce a redress scheme and it will then consult with industry on its detailed plans.
It has previously said it seems more likely than not that some redress will be necessary.
Factors the FCA must consider include whether the scheme would be ‘opt-out’, with customers who’ve had motor finance automatically included and the onus on finance providers to lead it, or ‘opt-in’ whereby consumers would have to confirm to their motor finance firm that they wish to be included.
The FCA hints that it realises the threat to the health of the car markets from widespread significant payouts, something which even the UK Government has flagged as having the potential to cause “considerable economic harm”.
The regulator notes that any redress scheme must be fair to consumers who have lost out and ensure the integrity of the motor finance market so it works well for future consumers. “If many firms were to go out of business or withdraw from the market, this could reduce competition and could make it more expensive for consumers to borrow money to buy a car in the future,” it said.
Speculative figures from claims management companies and law firms that tell consumers they could be “eligible to claim thousands” may turn out to be nonsense because the FCA has broad objectives that include encouraging healthy, competitive markets as well as protecting consumers.
The FCA said it has seen some compensation estimates based on Financial Ombudsman decisions, but notes that it may take a different approach to calculating redress and it will consider all evidence it has gathered plus the Supreme Court judgement to determine whether and how far consumers may have lost out.
“It’s not possible to predict the outcome of the Supreme Court’s judgment, but we’re engaging with stakeholders now and providing this update because we want to be able to act as quickly as possible once the Supreme Court has made its judgment, so we can start to bring greater certainty for affected consumers, firms and investors,” said the FCA’s statement.
Last year the FCA’s top legal expert warned this has the potential to be the motor industry’s equivalent of the £50bn PPI mis-selling scandal.
Many point of sale car loan providers are making reserves in their accounts in case they have to compensate customers who signed up to their finance even more than a decade ago, if the Supreme Court determines that dealerships really should have acted for the car buyer and should have been wholly open about how they earned commission from introducing finance lenders.
Ford’s motor finance subsidiary FCE Bank has set aside £61 million to cover potential compensation claims.
Banco Santander, the funding partner of Volvo Car UK, through its joint venture Volvo Car Financial Services UK, and since 2020 also a partner of MG, through its MG Motor Financial Services brand. is reportedly considering separating its car finance division from the rest of its UK operations as part of a broader corporate restructuring, as fears mount over potential redress on motor finance commission.