The Financial Conduct Authority (FCA) has outlined the factors it will be considering if it introduces a financial redress scheme as part of its probe into motor finance commission arrangements.
In a new update, the regulator said it will confirm within six weeks from the outcome of the Supreme Court case whether it will go ahead with a redress scheme.
The Supreme Court is expected to give its verdict next month.
The FCA said it has seen a range of redress rates declared, including some ‘highly speculative figures by some CMCs (claims management companies) and law firms, with some estimates based on Financial Ombudsman decisions.
But the FCA might take a different approach to calculating redress, it said, due to it being required to take a ‘broad view’. This will include evidence it has gathered during its probe and the Supreme Court judgement, to decide if and how far customers have lost out.
However, despite intentions to make any possible redress scheme fair to customers and to ensure the motor finance market’s ‘integrity’, the FCA is adamant that it does not want firms to be driven out of business, as this ‘could reduce competition and could make it more expensive for consumers to borrow money to buy a car in the future’.
The FCA added that if firms were to fail, customers may not get any redress because the motor finance sector isn’t covered by the Financial Services Compensation Scheme.
‘It’s not possible to predict the outcome of the Supreme Court’s judgment, but we’re engaging with stakeholders now and providing this update because we want to be able to act as quickly as possible once the Supreme Court has made its judgment, so we can start to bring greater certainty for affected consumers, firms and investors,’ said the FCA.
‘For example, given the pre-consultation engagement, we may decide to have a shorter than normal consultation window (for example, six weeks).’
The update also said that if any scheme were to be implemented, the FCA would make it ‘easy for consumers to understand and participate in, without needing to use a CMC or law firm’.
It added that customers should be aware that if they sign up now to a CMC or a law firm, ‘they may end up paying for a service they do not need and having to pay up to 30% in fees out of any award they may receive’.
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