The UK’s financial regulator is aiming to “streamline” its long-awaited motor finance compensation scheme following extensive industry backlash.
The Financial Conduct Authority (FCA) issued a fresh update to markets on Wednesday, stating it was reviewing over 1,000 responses to its proposals for the sector-wide redress scheme.
It added that “if” it were to proceed with a scheme, the regulator was “likely to make several changes”.
In its Wednesday update, the FCA stated it would streamline the process for consumers and firms by eliminating the opt-out options and replacing them with a three-month deadline for lenders to inform consumers what they are owed and how much.
Consumers receiving an offer would also be able to accept it immediately, rather than waiting for the final determination, as reported by City AM.
Firms would also no longer be required to write to customers via recorded delivery, which the regulator said would open new communication channels to best meet consumers’ needs.
The FCA stated: “If we do go ahead [with the scheme], we expect to publish final rules in late March.”
Earlier this year, Britain’s leading banks were believed to have been given some relief after the Supreme Court upheld two out of three appeals from lenders in the landmark car finance scandal.
But the latter half of the year delivered a succession of dramatic developments in the saga, with the FCA revealing proposals for a controversial redress scheme that prompted banks to substantially increase their provisions for compensation.
One of the principal areas of criticism regarding the FCA’s scheme centres on the determination of “unfair” – the benchmark the Supreme Court upheld in the single successful claimant’s case.
The highest Court ruled in favour of one of three claimants after determining their excessive commission of 55 per cent was “unfair”. However, the FCA has stated the threshold for its redress – where 14.2m agreements are estimated to be eligible – will be 35 per cent.
The scheme in its current form presents lenders with a bill of approximately £11bn – still a substantial sum but significantly below previous projections of £44bn once feared by the City. Roughly 14.2m agreements will qualify for the scheme, extending back to 2007 – a timeframe which has encountered fierce resistance from the industry.
The regulator was compelled to extend the deadline for submitting feedback for the motor finance redress scheme last year as opposition from both consumer and lending camps intensified.
Lloyds Banking Group – which owns Britain’s largest car finance provider Black Horse – was obliged to raise provisions to £2bn from £1.2bn after particulars of the scheme emerged in October. FTSE 250 lender Close Brothers nearly doubled its reserves to £300m and Barclays almost quadrupled its provisions to £325m.
Santander UK abandoned its third-quarter results in October, referencing uncertainty within the motor finance sector, as bank chief Mike Regnier urged the government to consider intervening to help mediate. He warned if the government does not intervene “the unintended consequences for the car finance market, the supply of credit and the resulting negative impact on the automotive industry and its supply chain could significantly impact jobs, growth and the broader UK economy.”
There has also been equivalent opposition on the consumer side, with the All-Party Parliamentary Group (APPG) on Fair Banking condemning the City watchdog for a “£4.4bn gap” in the proposed scheme. The group accused the regulator of being “influenced by the profit margins of the lenders”.