Last night motor industry trade bodies and expert advisors were left poring through hundreds of pages of information from the Financial Conduct Authority after it announced its final compensation scheme for motor finance.
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.
Shanika Amarasekara, chief executive of the Finance & Leasing Association, said the trade body wanted the FCA to deliver a responsible, workable announcement “that genuinely draws a line under the commissions issue” and restores regulatory certainty.
The FLA is now going through the FCA’s policy document, which numbers more than 500 pages, to assess the impact on its members and the motor finance market.
She noted that the FCA has clearly endeavoured to make the redress scheme more proportionate than the proposed scheme, and reiterated that any redress scheme for a market of this size must accurately identify and compensate only those customers who genuinely suffered loss.
“If it is drawn too broadly so that it also compensates customers who suffered no loss, the only real winners will be Claimant Law Firms and Claims Management Companies – and that cannot be the regulator’s intention considering that it has today had to launch a multi-organisational taskforce in an attempt to address the conduct of claimant firms operating in the motor finance market.”
Taskforce to tackle claims firms
Just hours before the redress scheme was announced the FCA said a new taskforce will tackle poor handling of motor finance claims by some claims management companies (CMCs) and law firms, after the FCA, Solicitors Regulation Authority (SRA), Information Commissioner’s Office (ICO) and Advertising Standards Authority (ASA) agreed to join up their efforts.
The finance regulator is concerned about the activties of some of these CMCs and law firms, and has emphasised to consumers that they don’t need to use them to claim motor finance compensation – they can easy apply themselves.
The scheme will be a “real disappointment” for the industry, according to Rachel Couter, head of UK contentious financial services at law firm Osborne Clarke.
Couter said: “It appears to push well beyond what the Supreme Court decided. It sharply increases the risk of legal challenge, with many expected to argue that the FCA has overreached.”
She believes the redress timetable looks tight for many lenders.
The National Franchised Dealers Association said it has engaged with the FCA as part of the consultation and had noted that the regulator had made several changes to the design of the final scheme. It too is now poring over the policy document and said it will update dealers in due course.
Still “big unknowns”
Firms active in the motor finance field also issued their early observations. At iVendi, chief executive James Tew said the scheme “could be viewed as a reasonable win” given that the cost to the industry is lower than was initially expected. The FCA has tried to show it has listened and made compromises, he said.
Tew added: “However, there are big unknowns of which the rebuttal of tied relationships could prove to be a messy area. Relationships between dealers and lenders can be complex, including not just motor finance but stocking loans, for example, and proving that any links have been disclosed to the customer could involve evidencing from both dealer and lender.
“Finding this proof could even be used by dealers as a means of asking for indemnification from lenders against any future clawbacks of commission.”
Captive lenders
Sushil Kuner, head of financial services regulation at national law firm Freeths, said one of the most important clarifications in the FCA’s final scheme is its treatment of captive and white‑label motor finance. The rules now make clear that a visible or contractual link between a lender, manufacturer or dealer does not, by itself, give rise to redress. “That is a significant shift from the consultation framing, and one that will be welcomed across the captive finance and OEM‑linked sector.
“The FCA has moved the focus back to where the law places it, on whether the commission structure and disclosure actually resulted in unfairness and consumer loss, assessed on the facts. For integrated finance models, this provides much‑needed certainty that scale, structure or branding alone are not being treated as proxies for misconduct.”
She said it remains a complex and resource‑intensive operational programme for lenders, but the FCA’s adjustments should materially reduce the risk of satellite litigation and allow firms to focus on identifying affected customers and delivering redress efficiently.
A large scale operational challenge
Her warning that this is a resource-intensive operation was echoed by Joe Norburn, chief executive of TCC Group, who added: “This is not a simple compensation exercise. It is a large-scale operational challenge that those in the industry shouldn’t take lightly. Some 12 million historic agreements will now be under review, so lenders need to move quickly to deliver fair and consistent outcomes, while meeting the FCA’s expectations to compensate the majority of consumers by 2027.”
Richard Pinch, senior risk director at banking and credit advisory consultancy Broadstone, flagged that there could still be other complexities ahead. He said: “Despite the FCA attempting to draw a line under the issue and urging co-operation with these final rules, such is the scale of the programme that it is possible lenders and claims management companies (CMCs) could still tackle the scheme through the courts.
“As a result, and against the wishes of the regulator, this could therefore remain a live issue for the sector in the months and years ahead.”