Consumer champion Consumer Voice is to challenge the Financial Conduct Authority’s motor finance compensation scheme, potentially delaying payouts for hundreds of thousands of individuals.
The FCA’s redress programme, launched at the tip of March, is designed to compensate motorists who were mis-sold automobile finance through hidden commission arrangements between 2007 and 2024.
Concerns over payout levels
The FCA has put the full cost of the scheme at £9.1bn covering 12.1 million agreements, with average payouts of around £830. Roughly £7.5bn is anticipated to go on to customers, with the rest covering administration costs comparable to tracing buyers, processing claims and making payments.
Read Motor finance redress: from commission to compensation
Nonetheless, Consumer Voice argues the scheme doesn’t go far enough and will leave drivers short-changed, claiming the methodology used to calculate compensation risks underestimating the true financial impact on borrowers, particularly attributable to assumptions around rates of interest and losses.
Alex Neill, co-founder of Consumer Voice, said: “We support a redress scheme, but this one doesn’t go far enough. Tens of millions of drivers were overcharged through hidden and unfair commission, yet the FCA’s scheme risks leaving lots of them missing out on a whole lot of kilos they’re owed.
“People have already been let down once by lenders. They mustn’t now be let down again by the regulator that’s presupposed to protect them. The FCA needs to repair the scheme to make sure it delivers fair and lawful compensation for drivers.”
Fixed formula questioned
Under the FCA scheme, it says, compensation is calculated using a hard and fast formula that buyers cannot challenge, even when their individual circumstances suggest they suffered greater financial harm.
Consumer Voice said it has put the FCA on notice of its intention to use to the Upper Tribunal to review how the scheme has been designed, particularly the calculation of compensation.
The group said its challenge shouldn’t be intended to stop the compensation process, but to make sure it more accurately reflects consumer losses.
“Our position is that the scheme should still give you the chance to stand up and running, while the Tribunal looks urgently on the parts of the principles coping with redress. The aim is to repair the failings, to not stop compensation.”
The group also raised concerns about consumer trust, citing research showing only 22% of shoppers imagine lenders will follow FCA rules when calculating compensation with just 7% trusting them to supply clear and impartial information.
Shanika Amarasekara, chief executive of the Finance & Leasing Association, has stated the trade body wanted the FCA to deliver a responsible, workable sheme “that genuinely draws a line under the commissions issue” and restores regulatory certainty.
Lenders and consumer groups have until 5pm on 27 April to challenge the FCA scheme.
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This Article First Appeared At www.am-online.com
