A committee of lawmakers has blasted the Financial Conduct Authority over the “deep lack of clarity” it provided over its motor finance redress scheme.
Lord Forsyth, the chair of the House of Lords Financial Services Regulation committee, said at an evidence session the City watchdog had “made it considerably more complicated and costly” in its redress following the Supreme Court’s judgment on car finance.
The scheme faced criticism from peers for its time frame dating back to 2007.
The peer branded the 18-year lookback an “unreasonable and disproportionate burden on lenders”.
Nikhil Rathi, chief executive of the FCA, argued “many firms broke the law” and defended the 2007 mark as aligning with the relevant statue of limitations.
“We believe the scheme is going to be the most orderly and efficient way of addressing those liabilities and bringing this to an orderly and efficient close,” the FCA said.
The motor finance crackdown from the regulator first began in 2017, where an explatory review was launched to assess the sales process employed by firms and whether the products could cause consumer harm.
The Lords accused the FCA of having “been asleep at the switch” for having “only reaching this conclusion now.”
Motor finance lenders take aim at FCA
The attacks on the redress scheme follow motor finance lenders being forced to up their provisions.
Lloyds Banking Group added another £800m to its motor finance reserves, taking the total cash set aside to £2bn, whilst Close Brothers near-doubled its provisions to £300m.
Both firms took aim at the FCA in similar statements criticising the methodology of the redress and adding it failed to reach a proportionate outcome.
The lenders said the watchdog assessment of “unfairness” did not align with the Supreme Court’s August ruling.
The top Court ruled in favour of one of three claimants after finding their outsize commission of 55 per cent was “unfair”.
However, the FCA has said the threshold for its redress – where 14.2m agreements are estimated to be eligible – will be 35 per cent.
A spokesperson for the FCA said many motor lenders “did not comply with the law or rules” and it was “time their customers get fair compensation”.
“We recognise not everyone will get everything they would like. But it’s vital we draw a line under the issue so a trusted motor finance market can continue to serve millions of families every year.”