Motor Redress – will everyone now get behind it?

The FCA has confirmed that it is going ahead with the proposed redress scheme to compensate motor finance customers, saying it has “listened to feedback and made changes so the final scheme is fair to consumers and proportionate for firms” and that “it will provide firms with certainty and finality to support the long-term availability of competitively priced motor finance”.  

The headlines are that: 

• The total amount to be paid out will be £7.5 billion - down from an originally estimated £8.2 billion.
• Around 12.1 million agreements will be eligible for compensation – down from a previously estimated 14.2 million. The eligibility criteria for redress is being tightened.
• The average payment per claim will now be £829, rather than the £700 previously estimated. Payouts will now be capped in around 1 in 3 cases.
• The estimated total bill to firms is down from £11 billion to £9.1 billion. 

Lenders, brokers, consumers and motor finance and professional trade bodies will now be reviewing the published rules (PS26/3) to assess the potential implications and decide whether to mount any legal challenge.  Consumers may consider the scheme has been ‘watered down’ and the interest paid on compensation owing is too low. Lenders/ dealers may view the scheme as still too generous and/ or inconsistent with last year’s Supreme Court ruling that car dealers do not owe a fiduciary duty to their customers and there remain practical difficulties paying redress where the lenders/ dealers lack records going back two decades.  Any challenge, even with expedition, could delay the start of redress payments by c. a year. 

Whilst the FCA has now encouraged all involved to ‘get behind’ the scheme, we await reaction on all sides.