Shares in major lenders including Lloyds (LLOY) rallied after the FCA imposed a cap on motor finance payouts. The estimated total bill to firms involved in the scandal is now seen around £9.1 billion instead of £11 billion.
Shrinking the bill
The compensation scheme covers motor finance agreements from April 2007 to November 2024 where commission was payable by the lender to the broker.
The FCA says it has tightened eligibility so only customers who were treated ‘unfairly’ receive compensation. That means agreements involving minimal commission or zero APRs aren’t included, while the threshold for high commission cases has been raised.
Where there are clear contractual ties between a manufacturer and a dealer, customers may not get compensation either. That means in total 12.1 million cases are now eligible, down from 14.2 million when consultations started.
The FCA has also adjusted how compensation is calculated for cases between 2007 and 2014. Therefore, around one in three cases will see compensation capped with redress costs seen at £7.5 billion instead of £8.2 billion.
Lenders will only need to contact complainants or those due compensation, without the need for recorded delivery. The FCA estimates this will reduce the cost of delivering the scheme by 40%.
The FCA says it expects ‘everyone’ to get behind the scheme and lenders to ‘put things right promptly’. However, consumers may well feel the banks have got off lightly again due to behind-the-scenes lobbying.
There’s obviously a case for not putting customers in a better position than if they had been treated fairly to start with. By tightening the eligibility criteria though, a lot of borrowers will fall through the net.
Moreover, there is no mention of fines or any other form of redress for what was basically misselling. The FCA says it will ‘supervise firms closely’ to make sure they comply, but that’s about as far as it goes.
Read the press release here: https://www.fca.org.uk/news/statements/fca-confirms-motor-finance-redress-scheme
