MPs: Scope for lenders to deny claims must be tightly controlled
The Financial Conduct Authority (FCA) car finance compensation scheme has been “patently been influenced by the profit margins of the lenders”, a report by MPs on the All Party Parliamentary Group (APPG) on Fair Banking has found.
In her foreword to the report, Dame Siobhain McDonagh MP said an analysis by Courmacs Legal, which acts for 1.5m car finance claimants, estimated that they would be awarded £6.5bn in compensation by the courts but only £2.1bn under the FCA scheme.
Dame Siobhain said that, from proposing that lenders “satisfy themselves” who qualifies for compensation, to the “convoluted processes and complex mechanisms” to assess claims, and the “extraordinarily low compensatory interest rate”, MPs were clear that the FCA scheme acts “against the interests of the consumer”.
They found that “there is no way that the ordinary consumer could understand the complex mathematical modelling the regulator has used to devise its calculation of loss”.
The FCA’s “concerted” £1m advertising campaign to “dissuade consumers from seeking professional guidance on their potential rights to redress through the courts” threatened the regulator’s impartiality “and must be viewed as a cynical means to try and protect lenders from the severest financial consequences” of their misconduct.
The FCA said last month that it was just trying to ensure consumers made informed choices.
Dame Siobhain went on: “Ultimately, this report comes to a clear and unambiguous conclusion – the redress scheme as proposed is not fit for purpose and is a long way from being fair, comprehensive or timely, the key principles set down by the regulator to guide its scheme.”
In the report Car Finance Scandal: Assessing Redress, sponsored by Courmacs Legal, MPs said that “pragmatism requires us to accept that, right now, we will not get the kind of fully independent scheme” that they would like.
“However, in those circumstances the scope for lenders to deny claims must be tightly controlled. For a customer to be told by the lender who mis-sold them a loan that they are not eligible for compensation because of a regulatory wrinkle they were not aware of, and will probably never understand, is no way to administer justice nor to rebuild confidence in the financial system.”
The MPs said that “by any reasonable comparator” the compensation proposed by the FCA was “way below” what consumers might have reasonably expected.
“The level, an average payout of £700 or just £518 for customers sold DCA [discretionary commission arrangement] loans, is below all previous benchmarks.”
MPs said it was “questionable” whether it was lawful to limit redress on the basis of the potential impact to lenders’ profitability.
“The Supreme Court refused to entertain the Treasury’s arguments about economic stability, rejecting them as irrelevant in the consideration of its car finance judgment.
“The FCA should tread warily here as they could be opening themselves up to judicial review by consumer groups or those representing the victims of mis-selling.”
MPs said the FCA had set in its consultation document the level of compensatory interest at bank rate plus 1%, which across the period worked out as a blended rate of 2.09%, “well below” the judicial norm of 8%.
“This decision on compensatory interest has arguably done more to favour the industry against the interests of the consumer than any other point in the proposed redress scheme. We estimate it has shaved as much as £4bn from the total redress bill, across the period.”
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