FCA: Motor finance redress scheme must keep market afloat
The Financial Conduct Authority has pledged any redress scheme it may implement on the motor finance industry must keep the market afloat.
The watchdog said ensuring the integrity of the motor finance market, so it works well for future consumers, would be crucial framework for a redress scheme.
The Supreme Court is expected to give its verdict whether it was unlawful for banks to pay a commission to a car dealer without the customer’s informed consent in the summer.
The FCA has said it will confirm within six weeks of the Supreme Court judgment whether it is proposing to introduce a redress scheme.
But the City regulator has made clear the scheme must not drive firms out of businesses or force any to withdraw from the market.
“This could reduce competition and could make it more expensive for consumers to borrow money to buy a car in the future,” the watchdog said.
It added if firms were to fail, customers may not be able to receive any compensation due to motor finance not being covered by the Financial Ombudsman.
FCA warns consumers against CMC
Analysts at RBC predict total provisions for the motor finance scandal could top £30bn.
The Treasury had previously tried to interject in the case, over fears the fallout could cause devastating damage to the banking industry.
Lloyds Banking Group leads for the steepest amount reserved at £1.2bn. Santander is on the hook for £295 and Close Brothers £165m.
The FCA said it would aim to make a scheme “easy for consumers to understand” but without the requirement of the claims management company (CMC) or a law firm.
The watchdog also warned consumers who were signing up with the CMC or lawyers could be forced to “end up paying for a service they do not need and having to pay up to 30 per cent in fees out of any award they may receive”.