Mercedes-Benz has change into the fourth group to challenge the £9.1 billion consumer redress scheme imposed by Britain’s financial regulator on the motor finance industry over the misselling of historic automobile loans.
The FCA’s redress programme, launched at the top of March, is designed to compensate motorists who were mis-sold automobile finance through hidden commission arrangements between 2007 and 2024.
Read Motor finance redress: from commission to compensation
The FCA has put the entire cost of the scheme at £9.1bn covering 12.1 million agreements, with average payouts of around £830. Roughly £7.5bn is predicted to go on to customers, with the rest covering administration costs equivalent to tracing buyers, processing claims and making payments.
Challenges mount against FCA plan
A spokesperson for the Financial Conduct Authority (FCA) confirmed to AM: “We’ve got received challenges from three lenders along with the challenge from Consumer Voice, represented by Courmacs Legal. We’re considering our approach and can set out more later this week.”
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.
The FCA had hoped the primary payments to customers, who could get a mean payout of around £830 per vehicle loan agreement, would start this yr. Nonetheless, any legal challenges could delay the compensation process.
Only last week, the regulator urged law firms and claims management corporations involved in any challenge to its motor finance compensation scheme to contemplate the impact on their clients, warning that legal motion could delay redress for consumers who’ve already waited greater than two years.
Banks hold back from appeals
The Finance & Leasing Association (FLA) confirmed earlier this week that its members wouldn’t challenge the motor finance redress scheme, despite ongoing concerns over elements of the proposals. It declined to make any comment on the news of the newest challenges.
Banks including the finance arms of auto manufacturers have collectively put aside billions of kilos for compensation.
Sky News reported first that the finance arm of Mercedes-Benz planned to challenge the scheme and that Volkswagen was expected to follow suit. Reuters also reports that BMW had reviewed the scheme and believed it could provide the fastest and easiest path to resolution for purchasers.
In February, the FT reported that the regulator was preparing to exempt loans provided by automobile makers’ in-house lenders attributable to the tied nature of the agreements although that didn’t feature in the ultimate scheme.
A recent report by investment bank RBC Capital Markets reckons that around 42%, or £3.8bn, is predicted to fall on the motor finance divisions of manufacturers. After examining the newest filings by manufacturers nonetheless, it estimated that collectively they’ve put aside just £803 million, leaving a shortfall of around £3bn.
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This Article First Appeared At www.am-online.com
