FCA Extends Consultation on Motor Finance Scheme Amid Backlash

The Financial Conduct Authority (FCA) has announced an extension of its consultation period for the motor finance redress scheme, moving the deadline from November 18 to December 12 at 17:00. This decision follows significant backlash from both lenders and consumers regarding the scheme, which aims to address concerns over commission structures in motor finance agreements.

Lenders have expressed strong criticism of the FCA’s approach, describing the proposed scheme as “disproportionate.” As a result, several financial institutions have been compelled to increase their provisions dramatically. For instance, Lloyds Banking Group, which operates the UK’s largest car finance provider, Black Horse, raised its provisions from £1.2 billion to £2 billion. Similarly, Close Brothers nearly doubled its funds to £300 million, while Barclays almost quadrupled its provisions to £325 million.

The uncertainty surrounding the motor finance sector has led Santander UK to withdraw its third-quarter results, as Chief Executive Mike Regnier urged the government to intervene. He warned that without government action, the fallout could severely impact the car finance market, the availability of credit, and consequently the broader automotive industry, affecting jobs and economic growth.

One contentious issue within the consultation revolves around the definition of “unfair” commissions. The Supreme Court had previously ruled in favor of a claimant whose commission of 55 percent was deemed “unfair.” In contrast, the FCA has set its threshold for redress at 35 percent, affecting an estimated 14.2 million agreements.

Consumer Concerns Amplified

Consumer advocacy has also intensified, with the All-Party Parliamentary Group (APPG) on Fair Banking criticizing the FCA for what it describes as a £4.4 billion shortfall in the proposed scheme. The APPG accused the regulator of prioritizing the profit margins of lenders over consumer interests.

In response to the backlash, the FCA stated, “It’s important we receive as much evidence as possible on specific concerns through the consultation as well as alternative suggestions if respondents don’t agree with our proposals.” The authority emphasized the need to maintain momentum in addressing complaints, noting that “complaints cannot be paused indefinitely.”

The FCA is still contemplating whether to extend the suspension of complaints beyond December 4, aiming to bring clarity to lenders, customers, and investors. The watchdog acknowledged the necessity of concluding the matter to instill confidence in the market.

As the December deadline approaches, stakeholders from various sectors will continue to monitor developments in this evolving situation, which holds significant implications for both the finance and automotive industries in the UK.