LONDON – Britain’s Financial Conduct Authority on Tuesday said it would likely consult on an industry-wide scheme to compensate motor finance customers if the Supreme Court rules that lenders and brokers should have been more transparent about commissions.
The regulator has been weighing potential consumer redress that analysts say could run into billions of pounds after London’s Court of Appeal ruled in October that it was unlawful for car dealers to receive commission from banks without a customer’s informed consent.
The Supreme Court will hear an appeal against the Court of Appeal’s judgment from April 1, and the FCA has said it will confirm within 6 weeks of the Supreme Court’s decision if it will propose a redress scheme and how to “take it forward”.
“A redress scheme would be simpler for consumers than bringing a complaint,” the FCA said in a statement, adding that it wanted to provide as much certainty as possible to firms, consumers and stakeholders.
“We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive.”
A number of British banks including Lloyds Banking Group, Santander UK and Close Brothers have already set aside cash in advance of a possible compensation scheme.
Ratings agency Moody’s said last November that the total industry costs for a British investigation into historic motor finance sales and “hidden” commissions by some banks and specialist lenders could reach 30 billion pounds ($38.72 billion), while more recent estimates suggest a more modest financial hit to the sector.
The regulator also said it may consult separately on
changes to its rules, depending on the Supreme Court’s decision.
Consultations would likely attract submissions from a range of respondents spanning banks, brokers and finance providers as well as consumer interest groups.
($1 = 0.7749 pounds)
(Reporting by Sinead Cruise in London and Pushkala Aripaka in Bengaluru; Editing by Janane Venkatraman, Aidan Lewis)
