Car finance: FCA tells lenders to prepare for the worst
If the various legal challenges to current motor finance compensation scheme succeed, there might be no scheme at all, the Financial Conduct Authority (FCA) has warned.
The regulator said it was unlikely that the case would be heard before October.
Last month, consumer rights group Consumer Voice announced it would challenge the scheme in the Upper Tribunal, while three lenders – Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance – have also launched actions.
In a statement issued on Friday, the FCA said the challenges “claimed in effect that the FCA’s approach to establishing the schemes has been both unduly favourable to consumers and unduly favourable to lenders”.
It summarised them as contesting multiple aspects of the scheme, including the presumption of an ‘unfair relationship’ (within the meaning of s 140A of the Consumer Credit Act 1974) between lender and consumer wherever a relevant arrangement was not adequately disclosed, and that it caused the consumer to suffer loss or damage.
Also under scrutiny is the calculation of redress, “including the rules for estimating consumer losses by adjusting the annual percentage rate they actually paid, the compensatory interest rate and the FCA’s consideration of consumers’ actual losses”.
The FCA said it was “unclear” when the case would be heard but said it was unlikely to be before October. “We are engaging with the tribunal and those who have challenged the scheme on the possibility of suspending some elements of it while retaining those relating to preparatory work.”
It urged lenders to continue to prepare for the scheme “until we communicate otherwise” and said they should still submit implementation plans by 12 May – but at this stage these will not need formally attestation as being in compliance with the rules.
The FCA said that if the scheme, or parts of it, were quashed, “we would need to carefully consider all options, taking account of all relevant matters. That would include whether to proceed with a revised scheme. This would likely require further consultation, and any resulting rules or guidance could face further lengthy challenge”.
It continued: “It is therefore now prudent for us to supervise all lenders against a central planning assumption that under that scenario there would be no scheme. Lenders need, therefore, to be operationally and financially ready for a complaint-led and supervisory approach to resolve historic liabilities.
“We recognise the impact this would have on consumers who may not always complain. This would also impose significant extra costs on lenders, which is why we are being clear on our indicative assumptions now to allow adequate time for orderly contingency preparation.”
The FCA stressed that it expected all lenders to prepare for this scenario, “including ensuring appropriate provisions and by engaging with their auditors”.
Jamie Patton, managing director of claimant law firm Johnson Law Group, commented: “It’s concerning that the FCA is so easily willing to rip up the entire scheme and ‘not bother’ because it is being challenged. I’m not sure what it hopes to gain by that threat.
“A wider comment about the banks’ ongoing responsibility to repay back the secret commissions it overcharged clients would be useful about now.”
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