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The UK financial regulator has warned that a compensation scheme for customers who were mis-sold car finance must avoid destabilising the industry, damping expectations of a record payout.
Companies should not be put out of business by paying out huge sums to customers, the Financial Conduct Authority said on Thursday, outlining its plans for a possible redress scheme.
“If many firms were to go out of business or withdraw from the market, this could . . . make it more expensive for consumers to borrow money to buy a car in the future,” the FCA said. The regulator said it would balance that priority against fairness for customers, but added that customers would not receive any compensation if firms failed.
The car finance scandal compensation scheme is expected to be one of the biggest of its kind — analysts at HSBC have estimated that it could cost lenders as much as £44bn.
The regulator is due to make a decision on details of the scheme within weeks of a Supreme Court ruling, expected this summer, on whether banks broke the law by paying secret commissions to car dealers without customers’ informed consent.
The FCA cautioned that “a range of redress rates” being touted to customers by claims management companies and law firms included “some highly speculative figures”. Other figures had been calculated based on ombudsman decisions — which the FCA said it may ignore.
A redress scheme would require banks to proactively contact customers who lost out and offer compensation — an approach that could prove more costly for the industry than waiting for individuals to file complaints.
The FCA said it wanted any redress scheme to be comprehensive and fast, making it easy for consumers to claim without relying on fee-charging claims management companies, which have touted heavily for business during previous scandals.
The regulator is carrying out a review of the UK’s compensation framework, at the request of the Treasury, to examine how to avoid a repeat of such “mass redress events” in the future.
