FCA “facing lender redress scheme challenge”

Auto finance lenders are challenging the Financial Conduct Authority (FCA) over the proposed design of its redress scheme for historic mis-selling claims, and are seeking an extension to the six-week consultation period, according to media reports.

At the weekend, the Times newspaper claimed several large banks have asked for more time to respond, a request which the regulator has rejected.

A spokesperson for the FCA told the newspaper : “We are moving at pace, having engaged for months on a possible scheme and timetable. Now the courts are clear that liabilities exist, consumers should be compensated quickly, so lenders can draw a line under this. “Complaints cannot be paused indefinitely. We will keep working constructively with lenders to help them digest all the material swiftly, while welcoming feedback on our proposals by the deadline.”

Consultation process

November 18 is the final date for submissions to the FCA consultation. The regulator is proposing a scheme which would cover motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker and the buyer was not told details of at least one of three arrangements between the lender and the broker:

1. A discretionary commission arrangement (DCA), which allowed the broker to adjust the interest rate the customer would pay to obtain a higher commission.

2. A high commission arrangement (35% of the total cost of credit and 10% of the loan).

3. A contractual arrangement or tie between the lender and broker, which provided exclusive or near exclusive rights to lenders to provide credit.

FCA estimates suggest lenders could be in line to pay out £8.2 billion in compensation, with consumers receiving £700 per agreement, on average.

Objections

Several banks have announced increased provision to cover compensation payments in recent weeks, including Lloyds which has set aside £1.9billion, Close Brothers £300 million, FirstRand £240 million and Barclays to £325 million.

However, there are indications that lenders feel the proposals are unfair. In announcing a tripling of the amount set aside for claims, Barclays stated its view “that the scope of the scheme and proposed approach to redress outlined in the consultation paper do not accurately address actual loss (if any) suffered by customers and do not achieve a proportionate or appropriate outcome.”

Lloyds CFO William Chalmers said” We do intend to compensate customers appropriately where harm has been suffered. That’s an absolute commitment,” but argued that allowing claims to be brought from 2007 “is in extent of what can be appropriately described as unfair.”

When the FCA first announced its six-week consultation Shanika Amarasekara, CEO of the FLA warned of the need to devise a redress scheme which is redress is “fair, proportionate, and sustainable” and highlighted potential risks of failing to take sufficient regard of lenders’ views.

“I appreciate that the regulator has a job to do, but so too have the legal, economic and compliance experts who have reviewed the proposals and found them to be wide of the mark if efficiency and proportionality were the objectives.

“The FCA assumes that inadequate disclosure of a DCA is tantamount to an unfair relationship, for which redress should be paid. But many DCA customers suffered no loss whatsoever.

“A consultation of this size, complexity and economic importance would ordinarily run for three months, yet this one is being completed in just six weeks. The onus is now on the FCA to listen carefully to industry evidence — because a badly designed remedy risks creating new problems rather than resolving old ones.”

The Times is also reporting that FCA CEO Nikhil Rathi is to visit Detroit later this week and is likely to seek talks with motor manufacturers such as Ford and Stellantis about the redress scheme proposals.