Neill: Consumers won’t accept being short-changed
Most consumers will use a lawyer to navigate the Financial Conduct Authority’s (FCA) car finance redress scheme – and almost all will go to court if it means receiving more compensation, according to new research.
Consumer rights organisation Consumer Voice warned the regulator that it needed to increase the proposed level of compensation “to more accurately reflect the true level of harm”.
Its survey of 2,021 members of the public who had taken out a car finance agreement between 2007 and 2024 found that 80% would choose to use the FCA scheme, and 61% would do so with support from a law firm – only 21% would prefer to proceed without a lawyer.
Only 13% say they would choose to go to court instead of using the scheme.
But this changed dramatically if compensation was considered inadequate, with virtually all respondents saying they would be prepared to go to court if it meant receiving more compensation than via the redress scheme.
Asked what level of uplift, after legal fees, would make litigation worthwhile, almost half said they would need at least £2,000 more than the FCA scheme would offer, while 20% said anything above the scheme.
Awareness of the issue was high, with nearly eight in 10 people knowing they may be owed compensation for mis-sold motor finance agreements, and 65% were aware the FCA has proposed a redress scheme – 82% said they would be likely to make a claim if eligible.
Yet despite this awareness, only 18% have already made a complaint to their lender, with only 7% believing lenders would provide clear and impartial information about the compensation process.
The FCA was seen as a reliable and impartial source of information about the process and their rights by 56% of consumers, while 45% said the same of the Financial Ombudsman Service and of a solicitor/legal adviser unaffiliated with their lender.
Alex Neill, co-founder of Consumer Voice said: “Consumers are willing to use the regulator’s redress scheme, but they won’t accept being short-changed.
“The FCA must act now to deliver a scheme that genuinely compensates consumers. If it fails to do so, many drivers will be forced to go to court to get the justice they’re owed.”
In its response to the FCA consultation on the scheme [1], Consumer Voice recommended that the opt-in approach for those yet to complain to their lender be changed to opt-out – supported by 57% of consumers polled, rising to 71% among those who have had several agreements.
“Opt-out is the only way to ensure the scheme reaches those who are most likely to miss out: older people, those on lower incomes, and the many consumers who no longer remember which lender financed their car,” it said.
Where a consumer has already complained through a legal representative, the lawyer should be contacted directly at the same time as the consumer, the response added.
“It is important to respect the choice of a consumer to be represented and not doing so risks missed deadlines and consumer confusion.”
The consultation said people would receive around £700 per unfair motor finance agreement but Consumer Voice said this did not properly reflect the true level of harm.
“The threshold for what constitutes a ‘high commission’ is set too high and should be reduced from 35% to a maximum of 20% and the 17% APR adjustment, which is at the heart of the redress formula, is an understatement which risks systematically depressing the compensation across millions of agreements.”
Three in ten people surveyed said they would rethink a deal if it costs rose by 10%. Nearly two-thirds would do so at 15% or below.
Rather than a simple interest rate likely to be around 2%, Consumer Voice said it should be 8% in line with case law and consumer borrowing costs.
“Compensatory interest should reflect the cost of losing access to your money. While a simple, fixed rate is sensible, the FCA’s proposal to use the Bank of England base rate plus one percentage point ignores the lived experiences of people who had to borrow, cut back or seek help because their loan cost more than it should have.”
The FCA also needed to ensure strong oversight and enforcement, given low consumer trust in lenders, the response said.
This should include template wording for lenders to use. “We also believe lender letters should include a clear statement that consumers may seek independent advice or representation if they want help understanding the communication or assessing any decision they are being asked to make.
“Our research shows that many consumers lack confidence navigating these processes, and a significant proportion would want the choice of independent legal support.”