Forsyth: Would six-year limitation be more appropriate?
Peers on the House of Lords’ financial services regulation committee have questioned whether the Financial Conduct Authority’s (FCA) plan for a motor finance claims redress scheme are too generous.
It expressed concern about the cost of the regulator’s proposals to lenders in a sign of the type of pressure the regulator will be under as it firms up its model.
In the wake of the Supreme Court ruling on 1 August, the FCA confirmed it would issue a consultation in early October on an industry-wide compensation scheme covering agreements dating back to 2007.
A letter from FCA chief executive Nikhil Rathi to the committee explained that this would make it consistent with consumers’ rights to take complaints to the Financial Ombudsman Service.
But, in response, committee chair Lord Forsyth questioned this: “Given that the basis of the claims for which any compensation would be payable will primarily be based on a breach of the Consumer Credit Act, the committee considers that a period which is aligned with the limitation period for bringing a claim in the courts, specified by the Supreme Court, may be more appropriate.”
The one-time Conservative cabinet minister asked what legal advice the FCA had taken on this point and whether the FCA had modelled how much the scheme would cost if run in line with a six-year limitation period.
The FCA has suggested the cost of its proposed scheme would be between £9bn and £18bn. “The FCA’s indicative estimate of the scale of redress is particularly important given the impact on the share price of listed lenders and the need for an orderly market,” Lord Forsyth observed.
He also asked about FCA modelling of the administrative costs that a redress scheme covering agreements dating back to 2007 would impose on lenders, and how it intended to ensure such costs “are proportionate to the amount of redress paid”.
This all led Lord Forsyth to ask if the FCA could substantiate Mr Rathi’s view that he expects “a healthy finance market for new and used cars to continue notwithstanding any redress scheme we propose”.
He concluded: “The committee has emphasised the need to avoid regulatory unpredictability and has been consistent in its view that market uncertainty around redress, as well as the broader burden of regulation, risks rendering certain financial services prohibitively expensive for UK consumers.
“Noting the importance of the motor finance market to consumers, the committee requests the FCA to appear before the committee in September to respond to our concerns.”
The Peers should not take a biased view. They’re concerned about the cost to financial institutions, what about the cost to the affected consumers?
Is not morally right that perpetrators of unfair practices pay the price? They resultant effects on the economy will, in the fullness of time, balance out when consumers spend their recompense.
The people in power should strive for fairness even when big institutions are adversely affected considering that they created the issue in the first instance.