Lloyds deciding not to challenge the FCA’s motor finance redress scheme sounds, at first glance, like good news for customers. One of the biggest lenders in the market has stepped back from a fight with the regulator.
But the redress scheme is a bit of a bargain for lenders.
Is it possible that Lloyds has backed down, not because the scheme is especially fair for consumers, but because it is an outcome too good to be true for lenders? A redress scheme gives firms structure, predictability and control but it also comes with many calculations and caps. Litigation does not.
Court claims can produce bigger awards, more awkward arguments, and a much messier outcome. A scheme, by contrast, can turn a large scandal into a large admin exercise. Under the redress scheme, the lenders are their own judge, jury and executioner, armed with complex varying criteria and reduced payouts, lost records and redress offers to consumers with the message “trust us – this is what you’re owed”.
Only this week was I faced with a defence from a lender who had argued that there was no discretionary model payment applied to my client’s credit agreement. In open correspondence we followed up to confirm to find out that actually, there had been a big chunk “missed out” of the defence and would we be willing to allow them to amend.
Lenders have been like this since this began. “Mistakes” such as matters being fixed commissions all the way up until a week before a final hearing then “oops, you were right all along.”
These are the very organisations now being trusted to clean up their own mess. In effect, the FCA has issued a punishment but then handed responsibility for enforcing it back to the perpetrators.
They also benefit from major media outlets promoting the scheme, with high‑profile figures like Martin Lewis repeatedly stressing that expert legal representation isn’t required, only to then direct consumers to claim through the redress scheme via his own website which generates revenue through online traffic.
The FCA has spoken about average redress of around £830 per agreement. In real cases, of course, some people will get less and some more. In practice I am seeing both lower and larger payouts though litigation but a £2,000 damages award is a fair average. Near three times the average expected payout under the scheme.
In some cases, that does not mean the FCA is wrong. It just shows averages can hide quite a lot. But it does raise a fair question. If lenders can settle huge numbers of complaints through relatively modest, standardised payments, are they getting a better deal than they would have got if all cases that fell in Redress Scheme 1 had been pushed into litigation?
That is where the scepticism comes in. A lender like Black Horse, part of Lloyds, is not known for rolling over. In litigation, if the other side accepts a proposal they shouldn’t be fond of, despite having kicked up a fuss prior, your first thought ought to be “what have we missed here…”
Unfortunately, I very much doubt that is where the mind of the FCA has gone.
Of course, the scheme may still be useful for many customers. It may get compensation out faster and with less stress. Not everyone wants to be dragged through court proceedings by obstructive lenders. For plenty of people, a quicker and more certain payment may be attractive.
But quicker and simpler does not always mean better. A scheme can be good at clearing a backlog and still be less favourable than litigation for claimants with stronger cases. That is the real tension here. The question is not only whether customers get something. It is whether they are being quietly steered towards a system which keeps payments bite-sized and avoids the risks lenders would face in court.
So Lloyds backing down does not necessarily prove the scheme is a great result for consumers. It may simply show the scheme is a better result for Lloyds than open litigation would have been. That is a very different thing.
Author: Joseph Stewart-Doyle
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