Following on from last month’s article on the subject, the FCA’s Motor Finance Redress Scheme Consultation is still dominating the headlines.
Banks don’t like it and have been increasing their provisions, whereas law firms, claims management companies and consumer organisations believe that consumers are being shortchanged by the proposals. Even the politicians cannot agree, with the House of Lords Financial Services Regulation Committee grilling Nikhil Rathi and generally being on the side of the lenders, whereas the All Party Parliamentary Group on Fair Banking is on the side of consumers, and thinks there is a “£4.4bn billion gap” in the proposed scheme and accused the FCA of being “influenced by the profit margins of the lenders.”
It goes without saying that the FCA has a very difficult job in balancing these opposing views, and perhaps, albeit a bit tongue in cheek, if everyone is unhappy then at least the FCA may be able to claim that the scheme is “fair” !!
The FCA has now bowed to some of the pressure and extended the deadline to respond to the detailed consultation and analyse the extensive market wide data by 3 weeks to the 12th December.
Feedback that the FCA has so far received on the proposed scheme relates to:
-
The methodology for calculating redress.
-
The time period of the scheme (principally whether the period 2007 – 2014 should be included.)
-
The rate of compensatory interest (the FCA is proposing base rate plus 1%, which works out at a weighted average of around 2% in the period, whereas previous FOS awards have been at 8%. This point alone is worth £billions.)
-
How independent mechanisms will ensure confidence (including the role of the FOS)?
-
How smaller firms of those with a low number of agreements eligible for redress can operate the scheme in a cost-effective way?
-
How to prevent fraud?
-
What the relationship between motor manufacturers and their captive lenders means for commercial ties, particularly in relation to lending for the purchase of new cars (which could be used to rebut the unfairness point in the proposed scheme regarding contractual ties that gave a lender exclusivity or a right of first refusal.)
The FCA anticipates that this extension will push the publication of final rules back to February or March 2026. This is still very ambitious and there is also a chance that someone may mount a legal challenge to the scheme pushing it back even further.
ITC is putting together its response to the consultation. If you wish to discuss any of this, please do not hesitate to get in touch with your usual ITC contact.