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Consumers will be able to claim compensation on up to 14mn car loans made since 2007, the head of the UK financial regulator has said, predicting the average payout will be hundreds of pounds.
Nikhil Rathi, chief executive of the Financial Conduct Authority, told MPs on Tuesday that it would present proposals early in October for an industry-wide scheme to pay redress to the millions of consumers deemed to have been treated unfairly over their car financing.
The scandal stems from commissions paid by lenders to motor dealerships as part of millions of vehicle sales for many years. The regulator and courts have said the commissions incentivised higher interest rates and were insufficiently disclosed to consumers.
Rathi said his aim was for “the critical mass of these complaints to be dealt with next year”, while warning that many of the individual cases would be “fact-specific” and require the FCA to “exercise some regulatory judgment”.
Appearing before MPs on the Treasury select committee, the FCA boss said the redress scheme would include a cut-off date for the last admissible claims. The end-date — which has not yet been set — is intended to avoid repeating the almost decade of turmoil caused by the payment protection insurance scandal, which ended up costing banks almost £50bn.
Rathi also said the regulator had received a “range of co-operation” from the almost 40 lenders with which it was discussing inclusion in the redress scheme.
Dame Meg Hillier, the Labour MP who chairs the committee, urged the FCA boss to name the lenders that had been most uncooperative. But he declined, offering instead to do so in a private session with MPs and to leave it to them to name the lenders publicly.
Some lenders object to the FCA’s plan for the redress scheme to cover loans made as far back as 2007, complaining that a lack of customer records will make it difficult to handle claims on agreements made so far back.
But Stephen Braviner Roman, the FCA’s general counsel, said that while lenders were required to keep records of loans for only six years after the agreement ended, many kept them for longer. Those that had not could get older data from credit reference agencies, he added.
FCA chair Ashley Alder told MPs claims could go back to 2007 because the terms of many car loans were not properly disclosed. In cases of “deliberate concealment”, the normal six-year statute of limitations applies only from when that fact is discovered.
In 2021, the FCA banned so-called discretionary commission arrangements, which allowed car dealerships to keep any extra interest they got customers to pay on car loans. But the regulator has said such discretionary commissions still breached the rules before then if they were not sufficiently disclosed.
Alder estimated the FCA’s redress scheme would cover 14mn loan agreements for vehicle purchases between 2007 and 2021 that included discretionary commission agreements. A “very significant proportion” of these would be eligible for redress, he said.
He added that a “smaller number” of consumers would also be eligible to redress for “unfair treatment” after the Supreme Court last month upheld the claim of a person whose car financing included a poorly disclosed commission amounting to 55 per cent of his interest costs.
“We believe that there is evidence that there have been unfair relationships between lenders and their consumers and commissions paid that were not adequately disclosed consistent with the rules at the time,” Rathi said.
The regulator has estimated lenders will pay between £9bn and £18bn in total redress. Rathi said its scheme would cover the period from 2007 to 2021, when about 30mn cars were bought with financing from lenders, although he said not all of those would be eligible for redress.