On Tuesday, March 11, the Financial Conduct Authority in London announced plans to potentially introduce an industry-wide program to compensate motor finance customers if the Supreme Court determines that lenders and brokers were not sufficiently transparent about commissions. The regulator is considering significant consumer redress, with estimates indicating potential costs in the billions of pounds following a ruling by the Court of Appeal that deemed it unlawful for car dealers to receive bank commissions without full customer consent.
The Supreme Court is scheduled to hear an appeal against the Court of Appeal's decision starting April 1. The FCA has committed to announcing its intentions regarding a redress scheme within 6 weeks of the Supreme Court's ruling, outlining how it will be implemented.
In a statement, the FCA emphasized that a redress scheme would simplify the process for consumers compared to filing individual complaints. The aim is to offer clarity to all stakeholders and ensure consumers retain any compensation received by reducing reliance on claims management companies.
Several UK banks, such as Lloyds Banking Group, Santander UK, and Close Brothers, have already allocated funds in anticipation of a potential compensation scheme. Estimates from Moody's suggest that the overall costs for the industry related to historical motor finance sales investigations could reach £30 billion, although some projections are more conservative.
Pending the Supreme Court's decision, the FCA is also open to considering revisions to its regulations. Such changes would likely prompt feedback from various parties, including banks, brokers, finance providers, and consumer advocacy organizations.