Last week, on The Open Forum, I suggested Lloyds stepping back from a fight with the FCA on the motor finance scheme did not automatically mean consumers had won. In fact, I heavily alluded somewhat to the opposite.
You can read that article here but the basic point was a redress scheme can be quick, tidy and convenient without necessarily being the best outcome for borrowers. Evidently, this question has remained a hot topic.
It has now been confirmed that consumer group, Consumer Voice, is preparing legal action against the FCA over its car finance compensation scheme. It says the scheme is inadequate and leaves drivers short-changed. The challenge would go to the Upper Tribunal, where the merits of the scheme could be reviewed. Consumer Voice argues the FCA has put too much weight on limiting lenders’ overall bill, unfairly capped interest, and narrowed the scheme in a way which reduces compensation for consumers.
The FCA has presented the scheme as the quickest and fairest way to compensate millions of motorists. It says the scheme is worth £9.1bn overall, with about £7.5bn going to borrowers and the rest covering firms’ administration costs. It also says average compensation will be around £830 per mis-sold loan.
But this is exactly why there is concern and I direct you to my previous article on the matter for more detail here but simply put, quick and simple does not always mean generous and it certainly does not automatically mean fair!
A standard formula can be good at moving money out the door while still keeping payments lower than what some claimants might recover in court. I put the redress calculations in to Gemini, Google’s AI offering, to see what it’s thoughts were on the same. I was presented with the following response which I found amusing but telling!
If the scheme produces lots of bite-sized payments and closes down the risk of larger, messier litigation, lenders may not be terribly upset by it. That is why Lloyds backing down may not have been an act of surrender at all. It may simply have decided the FCA’s scheme was a better deal than open-ended court claims.
The FCA’s answer is not entirely weak. It says any challenge would delay payouts for millions of people. That is true. Many consumers have had claims pending since 2021. If the scheme were stay as is, money had been expected to start reaching consumers as early as this summer.
The lenders have to accept that the battle is largely lost. The new question for the regulator to now face is whether the scheme is pitched at the right level, or whether consumers are being nudged into a fast system which suits banks a little too well.
Author: Joseph Stewart-Doyle
Private legal consultancy services in relation to motor finance claims are available through JSD Legal Consulting, contactable through LinkedIn here.
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