The House of Lords’ Financial Services Regulation Committee has sounded the alarm on “market uncertainty” around the UK financial watchdog’s upcoming motor finance redress scheme.
In a letter addressed to the Financial Conduct Authority’s chief executive Nikhil Rathi, the committee “considers it of importance” to receive further insight into the forthcoming scheme.
The City watchdog said in June any redress scheme would ensure the integrity of the motor finance market so it works well for future consumers.
But the letter, penned by committee chair Lord Forsyth of Drumlean, queried how the regulator can “substantiate its view”.
“The Committee expects the FCA to share the modelling it has undertaken, either publicly or privately, on the likely impact that redress at the estimated scale will have on the integrity of the motor finance market in the UK,” the letter read.
The FCA said it would consider cases dating back to 2007, a move which sparked fierce backlash with Stephen Haddrill, director general of the Finance & Leasing Association, branding the timeframe a “major concern” and “completely impractical”.
The committee said the limitation period for bringing a claim in the courts – which stands at 12 years – “may be more appropriate”. The letter questioned the “legal grounding” the regulator used to outline the timeframe.
Motor finance redress to cost up to £18bn
The FCA expects the final cost of a redress scheme to fall between £9bn and £18bn and urged firms to “refresh their estimates, ensuring they cover both liability for compensation and the administrative costs”.
In a conference call with market analysts after the announcement of the redress scheme, Rathi said: “there will be potentially several billion of admin costs”.
Lord Forsyth’s letter questioned “what work” the regulator had undertaken to “model the administrative costs that a redress scheme covering agreements back to 2007 would impose on firms”. It asked how the FCA intends to ensure “such costs are proportionate to the amount of redress paid”.
The peer called for the FCA to appear before the Committee in September “to respond to our concerns”.
This follows Rathi pushing back against industry claims that the wide scope of the motor finance redress scheme was “impractical” earlier this week.
The FCA chief said in an interview with the Financial Times: “Now is not the time to haggle with us but to help put things right for consumers”.
Anthony Coombs, chair of specialist lender S&U, told City AM on Monday the motor finance redress scheme offers the FCA the prime opportunity to turn its ‘regulate for growth’ rhetoric into action.