LONDON, Dec 12 (Reuters) – Compensating British consumers for mis-sold car loans could cost billions of pounds more than regulators have estimated, industry sources say, throwing into doubt plans for payouts in 2026 to resolve one of Britain’s most expensive mis-selling scandals.
Sign up here.
But the FCA’s methodology for calculating costs, which includes a broader-than-expected definition of what constitutes an unfair loan and a lower-than-expected bar for excessive commissions, has inflated the industry’s bill, the sources said, with two floating estimates of closer to 18-20 billion pounds.
Unless the regulator recasts its proposals, it is likely to face a costly and time-consuming legal challenge, the two sources and two other industry figures said, declining to be named because of the sensitivity of the subject.
While the sources say lenders are not expected to make public their estimates, they will raise objections in responses to an FCA consultation that closes on Friday.
The dispute over the scale of the scheme spells uncertainty for lenders and their final provisions. The compensation scheme is also a test for the FCA, under pressure from Britain’s Labour government to support economic growth by easing the regulatory burden on financial services.
REGULATOR WANTS TO START PAYOUTS NEXT YEAR
A spokesperson for the regulator, which wants to finalise plans by end-March and start payouts next year, said it had “engaged extensively” through the consultation and that feedback would help it to refine its proposals and ensure the scheme was “fair and robust”.
“That’s vital if we’re to draw a line under this issue, with consumers fairly compensated and a motor finance market continuing to work well,” the spokesperson said.
The watchdog wants the industry to pay for inadequately disclosed commissions paid by lenders to motor dealerships and contractual ties between lenders and dealerships that it says incentivised brokers to raise rates on car loans.
The dispute centres in part on the FCA’s definition of excessive commissions and its decision to label as unfair all “tied relationships”, where dealerships introduce clients exclusively to lenders.
One of the sources said some in the industry felt the FCA had got its maths wrong, that shareholders would want to exhaust all legal options and that a 20 billion pound figure, “based on crude maths”, was a “great negotiating number” to take directly to the finance ministry.
DID CUSTOMERS SUFFER LOSSES?
The industry is also questioning whether the scheme’s methodology reflects actual losses to customers – partly because some dealerships used commissions they earned to offer discounts for vehicle purchases.
Adrian Dally, director of motor finance at the Finance and Leasing Association, the lobby group leading the industry response, called for a quick resolution for everyone treated unfairly.
But he added: “For the redress scheme to be credible, it must only compensate those customers who have suffered loss.”
A finance ministry spokesperson said only that stakeholders should take part in the consultation and that the ministry wants the issue to be resolved in a way that provides “certainty for consumers and firms”.
($1 = 0.7451 pounds)
Reporting by Kirstin Ridley, Phoebe Seers, and Tommy Reggiori Wilkes; editing by Barbara Lewis
Our Standards: The Thomson Reuters Trust Principles.
