Members of the UK House of Lords have urged the Financial Conduct Authority (FCA) to shorten the timeframe for its proposed car finance compensation scheme, which currently covers mis-sold loans dating back to 2007. Lord Michael Forsyth, Chair of the Lords’ financial regulation committee, expressed concern over the challenges this poses for both consumers and firms in retrieving and reviewing old records. The peers suggested aligning the scheme with the six-year limitation under the 1974 Consumer Credit Act.
The FCA introduced the redress plan following a recent Supreme Court ruling, with potential compensation costs for lenders estimated between £9bn and £18bn. However, FCA General Counsel Stephen Braviner Roman noted that many claims may bypass the six-year limit due to exceptions related to undisclosed facts.
The regulator defended the 2007 start date as aligned with existing complaint routes and aimed at comprehensive resolution of affected cases. Nonetheless, industry leaders like the Finance & Leasing Association question the viability of accessing records from that long ago. Forsyth warned that uncertainty and regulatory burden could make financial services increasingly unaffordable for UK consumers. The FCA plans to consult widely before finalizing the scheme.
The FCA’s proposed redress scheme aims to compensate consumers who were mis-sold car finance agreements, particularly those involving discretionary commission arrangements (DCAs). These arrangements allowed car dealers to increase interest rates on loans in exchange for higher commissions, a practice banned by the FCA in 2021. The Supreme Court’s recent ruling has prompted the FCA to consider an industry-wide compensation scheme, with potential costs for lenders estimated to be substantial.
The FCA has indicated that it will consult on the redress scheme if it concludes that motor finance customers have suffered from widespread failings by firms. Under such a scheme, firms would be responsible for determining whether customers have lost out due to the firm‘s failings and offering appropriate compensation. The regulator has also proposed extending the deadline for firms to respond to motor finance complaints involving DCAs until December 2025 to allow time for the consultation and potential implementation of the redress scheme.
Industry leaders have expressed concerns about the feasibility of compensating customers for loans dating back to 2007, given that firms were not required to retain such dated information. The Finance & Leasing Association has questioned whether it is possible to have a fair redress scheme that goes back to 2007 when firms have not been required to hold such dated information, and the evidence base will be patchy at best. The FCA has acknowledged these challenges and plans to consult widely before finalizing the scheme.
The proposed redress scheme has significant implications for both consumers and the financial services industry. While it aims to compensate consumers who were mis-sold car finance agreements, it also raises questions about the practicality of accessing and reviewing records from as far back as 2007.
The FCA’s consultation process will be crucial in determining the scope and implementation of the scheme, balancing the need for consumer protection with the operational challenges faced by firms.
Leave a comment