The FCA has announced a potential industry-wide redress scheme for customers affected by motor finance failings.
The regulator is currently reviewing the past use of motor finance discretionary commission arrangements (DCAs) to understand if firms failed to comply with requirements relating to DCAs and if consumers lost out as a result. If they have, the FCA says it wants to make sure "consumers are appropriately compensated in an orderly, consistent and efficient way.
Since the FCA launched its 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 1st to 3rd April.
The FCA has today announced that if, taking into account the Supreme Court’s decision, it finds motor finance customers have lost out from widespread failings by firms, "then it’s likely we will consult on an industry-wide redress scheme".
Under a redress scheme, firms would be responsible for determining whether customers have lost out due to the firm’s failings and, if they have, would need to offer appropriate compensation.
The FCA says a redress scheme would be simpler for consumers than bringing a complaint and it would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive.
As such, the regulator says it is no longer planning a further announcement in May. Instead, it will confirm within six weeks of the Supreme Court’s decision if is proposing a redress scheme.
Depending on the Supreme Court’s decision, the FCA may also consult separately on changes to its rules.
Darren Richards, head of insurance regulatory, and risk at Broadstone, commented: “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.”
