FLA calls for a workable solution to motor finance redress scheme

The Finance & Leasing Association (FLA) has submitted its response to the Financial Conduct Authority’s (FCA) consultation on a proposed Section 404 Motor Finance Consumer Redress Scheme.

While lenders fully support a robust and credible redress programme for customers who have suffered loss, the FLA warns that the scheme as drafted cannot deliver the fairness, simplicity, finality, efficiency or certainty the FCA set out as its own guiding principles.

FLA members remain committed to providing prompt and full compensation to any customer who has genuinely suffered loss as a result of an unfair relationship under the Consumer Credit Act. That is, and must remain, the central purpose of any redress scheme. The Association is therefore urging the FCA to recalibrate the scheme so that it identifies and compensates only those consumers who have actually suffered loss. Also to protect consumers’ long-term access to affordable credit; avoids awarding redress where no unfair relationship arose – a practice that would undermine fairness and damage confidence in the system; and is operationally deliverable within a realistic implementation period.

A credible Section 404 FSMA redress scheme must be fair to consumers and lenders. However, the FCA’s current proposals rely on broad, blunt liability tests that would result in redress being paid to millions of customers who experienced no unfair relationship, or no loss, diverting resources away from those for whom redress is genuinely due.

To support constructive progress, the FLA’s response includes alternative methodologies for establishing liability and loss, and practical recommendations to ensure a scheme can be implemented efficiently. For example, the current obligation on firms to trace, contact and send registered letters to customers who are not owed redress is disproportionate, expensive, and risks overwhelming the system for no consumer benefit.

Shanika Amarasekara, CEO of the FLA, said “Our submission is the product of extensive analysis by industry practitioners, economists and leading experts from across the motor finance market.

“The most important point is simple: a redress scheme must provide redress to those who have suffered loss as a result of an unfair credit relationship. Where we differ from the FCA’s proposals, it is because the evidence shows there are fairer, more targeted and more efficient ways to achieve that outcome.

“All eyes are now on the regulator and the industry. The best result is one where we work together to deliver redress swiftly to those who need it, protect consumers’ future access to finance, and create a scheme that is workable and credible for all.”