FCA considering motor finance compensation scheme

The Financial Conduct Authority (FCA) has announced the next stage of its review into the motor finance scandal, with the regulator set to consult on an industry-wide redress scheme if the Supreme Court upholds the Court of Appeal’s ruling that commissions were not properly disclosed to customers.

The FCA, which has identified widespread failings in the handling of discretionary commission arrangements, said a redress scheme ‘would be simpler for consumers than bringing a complaint,’ noting that fewer consumers would have to rely on a claims management company.

The FCA said in a statement that it is currently reviewing the past use of motor finance discretionary commission arrangements (DCAs). The regulator is seeking to understand if firms failed to comply with requirements relating to DCAs and if consumers lost out as a result. The regulator wants to make sure consumers are appropriately compensated in an orderly, consistent and efficient way.

Since the FCA launched a review, a ruling by the Court of Appeal has raised the possibility of widespread liability among motor finance firms wherever commissions were not properly disclosed to customers. The Supreme Court will hear an appeal against the Court of Appeal’s judgment on 1 to 3 April. The FCA has been granted permission to intervene in the case and has filed its submission with the Court.

Under a redress scheme, firms would be responsible for determining whether customers have lost out due to the firm’s failings. If they have, firms would need to offer appropriate compensation. The FCA said set rules firms must follow and put checks in place to make sure they do.

Darren Richards, Head of Insurance Regulatory, and Risk at Broadstone, said “The FCA’s update provides a degree of certainty over the possible steps it will take to support consumers in the ongoing motor finance review.

“While firms will still need to wait for the findings of the Supreme Court, an industry-wide redress scheme would avoid an individual case-by-case approach and provide a consistent framework for compensating consumers. It is hoped that the additional consultation required by an industry-wide redress scheme would be offset by a reduction in the time it takes to compensate consumers and ensure all those applicable receive redress.”

Jenny Ross, Editor of Which? Money, said “While much still rests on the Supreme Court decision, a redress scheme would remove the need for consumers to make a direct complaint to providers.

“This could greatly simplify the process and reduce the need for claims management firms to be involved, increasing the chances of motorists getting 100% of any payout that may be awarded.”