On 8 May, the Financial Conduct Authority (FCA) issued a further update on its motor finance compensation scheme, reporting legal challenges from lenders as well as a consumer group. But while it is now likely that there will now be delays, the overarching message is still clear: if you think you’ve been mis-sold car finance, it’s important to get your complaint in.
A quick recap
The FCA announced in March this year that it intended to introduce an industry-wide compensation scheme for customers treated unfairly in relation to motor finance commission arrangements between 2007 and 2024.
The regulator believes a centralised scheme is the best way to deal with this large-scale issue, which impacts millions of finance agreements across the UK. However, several parties have now launched legal challenges against the proposed scheme.
Three of the challenges are from car finance lenders: CA Auto Finance, Mercedes-Benz Financial Services and Volkswagen Financial Services. They believe that the FCA’s proposals go too far. The other, intended to increase payouts for those affected, is from Consumer Voice.
As a result, it is now likely that there will be delays to the timetable while the legal process continues. The FCA has said the case probably won’t be heard until October, and that it will provide another update as soon as possible.
What elements of the car finance compensation scheme are being challenged?
All four challenges argue that the rules governing the redress scheme are unlawful, either as a whole or in part. As a result, they want the court to invalidate them.
According to the FCA, the challenges are based on a variety of factors, which – taken together – suggest that the scheme is ‘both unduly favourable to consumers and unduly favourable to lenders.’
For example, the FCA has explained that its power to make the rules has been challenged, as has its application of the rules to agreements entered into before 1 April 2014. Other elements under dispute include the basis for determining whether lenders are liable and whether consumers suffered loss or damage, as well as how redress should be calculated.
Does this mean compensation claims are stopping?
At this stage, no. The FCA has made clear that it intends to defend the redress scheme ‘robustly’. The organisation believes that an industry-wide approach is the best way to deliver fair outcomes for consumers. The regulator has not withdrawn the scheme, nor has it suggested that those affected should stop pursuing complaints.
Instead, the FCA has acknowledged that the legal challenges may affect timing and has asked firms to continue planning for different possible outcomes while the courts consider the issues. While that may create some uncertainty in the short term, it does not mean the wider issue around motor finance commission arrangements has disappeared.
What does the FCA update mean in practice?
For consumers, the main impact is, unfortunately, delay. The legal challenges are likely to slow the implementation of the formal compensation process while the courts review objections raised by lenders and consumer representatives.
That said, many lenders are continuing to review historic agreements and prepare for potential compensation, while the FCA continues to emphasise the importance of fair consumer outcomes. For those affected, the current position is largely one of patience rather than panic.
Peter Dodd of Harrington Sinclair Law said: ‘While the legal challenges may delay aspects of the FCA’s proposed scheme, they do not remove consumers’ rights or the wider scrutiny around motor finance commission arrangements. Many people are understandably uncertain about what happens next, but the important thing is that the issue remains under active review and consumers should stay informed.’
What should consumers do now?
Ultimately, it’s important not to let the legal challenges put you off making a complaint, if you think you might have one.
You can complain directly to your lender without using a legal firm. However, working with experienced lawyers can make the process simpler. It can also be helpful to seek advice if you’re unsure whether your agreement may be eligible. However, you should never feel pressured into signing up with claims companies using aggressive marketing tactics.
Whether you complain directly or with the support of a law firm, you’ll find it helpful to:
- Find copies of any finance agreements
- Retain correspondence from lenders
- Note when agreements were taken out
- Keep up to date with the latest FCA announcements
Remember, this process is still evolving
The frequent FCA updates can feel disconcerting. But it’s important to remember that large regulatory schemes of this nature often develop over time through consultation and legal challenge.
These developments always generate headlines. But ultimately, the FCA wants a coordinated solution that provides clarity for consumers while ensuring firms deal appropriately with any historic failings.
We’ll continue to provide updates as the regulatory and legal position evolves. In the meantime, our mis-sold car finance page has further information – and if you’d like help understanding your options, just use the link below to give us a few details and a member of our expert, friendly team will be in touch.
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