The Finance & Leasing Association (FLA) has confirmed its members will not challenge the Financial Conduct Authority’s current motor finance redress scheme, despite ongoing concerns over aspects of the proposals.
The decision removes one potential legal obstacle to the implementation of the FCA’s compensation programme, which is intended to compensate motorists who were mis-sold car finance through hidden commission arrangements between 2007 and 2024.
Redress scheme clarity
Shanika Amarasekara, chief executive of the FLA, said: “We have always been clear that customers who have suffered loss should receive compensation and that a consumer redress scheme is the right way to achieve this.
Read Motor finance redress: from commission to compensation
“The FLA has undertaken a detailed review of the FCA’s proposed scheme in close consultation with our members, alongside internal and external economists and legal counsel. As the leading industry trade body, it is our responsibility to consider how regulatory action will affect not only our members and their customers, but also the wider UK lending market, particularly when the scheme is unprecedented in scale and scope, and the impact on the UK economy will be significant.
“We continue to have concerns about aspects of the scheme, but our priority is that a practical solution be reached that ensures timely compensation for consumers while giving the motor finance industry and the wider market clarity and finality on this issue. For those reasons, we will not be challenging the FCA’s current scheme.
Legal challenge remains
The FLA’s position contrasts with Consumer Voice, which has said it will challenge the FCA’s motor finance compensation scheme over concerns that some drivers could be undercompensated.
The FCA’s redress programme, launched at the end of March, is expected to cover 12.1 million agreements, with average payouts of around £830. The regulator has put the total cost of the scheme at £9.1 billion, including around £7.5bn in compensation to customers.
Consumer Voice argues the FCA’s methodology risks underestimating losses for some borrowers, particularly because of assumptions around interest rates and the financial impact of mis-sold agreements.
For dealers and finance providers, the FLA’s decision reduces uncertainty around one possible industry challenge, but the prospect of legal action from consumer groups means the timetable for compensation and implementation remains closely watched.
The FLA said it would continue to engage constructively with the FCA and other stakeholders to support the effective implementation of the scheme.
Interested parties have until 5pm today (27 April) to challenge the FCA scheme.
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