Millions of motorists caught up in the £9 billion car finance mis-selling scandal face a longer wait for compensation, with the City regulator warning that payouts are now unlikely to begin before 2027.
The Financial Conduct Authority (FCA), whose £9bn redress scheme was designed to draw a line under one of the biggest consumer finance scandals since PPI, has seen its plans challenged in the courts by the finance arms of leading carmakers as well as a consumer group.
The regulator has already spent more than £20 million developing the scheme, which would pay an average of £829 across an estimated 12.1 million eligible car finance agreements. At issue are so-called discretionary commission arrangements, widely dubbed “hidden” commission, under which dealers could inflate interest rates to boost their own earnings, leaving motorists without a fair deal on their loans.
Payments were due to start this year but are now on hold. In correspondence with the Treasury select committee, Nikhil Rathi, the FCA’s chief executive, said it was unprecedented for an agreement to recompense complainants to be paused for two years, adding: “Any payouts are now increasingly unlikely before 2027.”
Rathi, a former senior director of the London Stock Exchange and one-time Treasury mandarin who advised both Tony Blair and Gordon Brown, told committee chair Dame Meg Hillier that the hold-up stemmed directly from legal challenges to the proposed scheme.
“The final scheme is fair to consumers and proportionate for firms and, while not all agree with every element, lenders representing most of the market and their trade bodies chose not to challenge,” he wrote. “Several have said publicly that, despite reservations, the scheme offers the quickest and most effective route to certainty for both customers and investors.”
He added: “It is disappointing that four commercial parties proceeded with challenges.”
The financial services arms of Volkswagen and Mercedes-Benz, the car finance division of French bank Crédit Agricole, and Consumer Voice, a group representing consumers, are asking the courts to quash the scheme, arguing the rules are unlawful. Notably, no UK bank has chosen to challenge the arrangements, Lloyds, the most exposed UK lender, has already set aside well over £1 billion to cover its share of an industry bill expected to reach £9.1 billion.
The cost of the saga continues to mount for the regulator itself. The FCA, funded by fees levied on the firms it regulates, has spent £20.5 million over more than two years building the scheme, and estimates the court battle will add a further £2.7 million. Around 80 staff are currently engaged on motor finance work, a reminder of just how far the affair has ballooned since warnings that lenders could face claims of up to £44 billion before the Supreme Court narrowed the scope of liability.
There may yet be a glimmer of hope for weary claimants. Sarah Pritchard, the FCA’s deputy chief executive, told MPs the watchdog was exploring ways to pay some consumers early.
“Consumers have been waiting a very long time to be compensated and, one way or the other, they need to be compensated,” she said.
