A British consumer group has initiated a legal challenge against a £9.1 billion compensation scheme designed to redress motorists for mis-sold motor finance, a move described as "disappointing" by the UK's market regulator.
Legal Challenge Filed
Consumer Voice announced on Monday that it has applied to London's Upper Tribunal to contest the scheme, which the Financial Conduct Authority (FCA) unveiled last month. The FCA's final bill was a trimmed-down version, following pushback from lenders and the overturning of a landmark ruling by the UK's top court.
The FCA stated: "We are considering our approach and will set out more later this week." While lenders such as Close Brothers and Santander have decided not to challenge the FCA's redress scheme, which the regulator said would allow consumers to receive compensation quickly, Consumer Voice argues it "fails to deliver fair, adequate or lawful consumer redress and systematically under-compensates consumers."
Consumer Group's Concerns
The group said in a statement that it believes "consumer redress has been minimised in order to protect lenders." The FCA warned that the move could delay consumers receiving compensation and "also prolongs the uncertainty for all involved, which is not good for investment or a healthy motor finance market."
The main industry body, the Finance and Leasing Association (FLA), said it had "concerns" about the programme but that it was choosing not to raise a challenge. Yesterday, the FLA reiterated its stance, following major lenders including Barclays and Lloyds also accepting the FCA's scheme despite raising concerns that the level of redress is disproportionate to those who suffered harm.
Industry Body's Position
The FLA, which represents the UK's motor finance firms, said it had considered how the regulator's scheme would affect its members, their customers and the wider lending market given that it was "unprecedented in scale and scope, and the impact on the UK economy will be significant."
"We continue to have concerns about aspects of the scheme, but our priority is that a practical solution be reached that ensures timely compensation for consumers while giving the motor finance industry and the wider market clarity and finality on this issue," FLA chief executive Shanika Amarasekara said. "For those reasons, we will not be challenging the FCA's current scheme."
Compensation Details
Payouts are due on about 12.1 million mis-sold deals from an array of lenders at an average of £829 each, the financial watchdog said in March as it unveiled plans for its redress scheme. The FCA expects the total amount of redress paid under its scheme to be about £7.5 billion, based on about 75% of eligible consumers making a claim. Also taking into account the cost of running the scheme, such as dealing with the millions of complaints, the total bill rises to £9.1 billion.
