Car finance compensation scheme proposed in the UK may not reach the scales witnessed with PPI claim settlements, according to regulatory authorities.
The Financial Conduct Authority (FCA), the UK's top financial regulator, is planning to consult on an industry-wide redress scheme for motor finance agreements dating back to 2007. This move comes in response to concerns about unfair treatment or non-disclosure in the motor finance sector.
The expected cost of this potential motor finance compensation scheme is estimated to be between £9 billion and £18 billion. This figure is significantly less than the £50 billion cost of the Payment Protection Insurance (PPI) scheme, one of the largest consumer redress schemes in the UK.
The FCA estimates that most individual compensations will likely be under £950 per agreement, with millions of motor finance deals potentially affected, though only a proportion would receive compensation. This scheme is meant to be consistent, efficient, and fair in deciding who is owed redress and how much, following the Supreme Court ruling on unfair commission practices in motor finance.
Lenders, including major banks in the UK like Lloyds Banking Group, Close Brothers, Barclays, the UK arms of Santander, and Bank of Ireland, have taken proactive steps to prepare for potential compensation claims in the motor finance sector. They have set aside nearly 2 billion pounds between them to cover these potential claims.
While the motor finance compensation scheme may involve billions in payouts, it is expected to be about one-fifth to one-third the total cost of the PPI redress scheme. However, it's important to note that lenders may still face claims for overcharging in some cases, despite the overturned ruling.
The FCA will confirm before markets open on Monday whether it plans to consult on a new redress scheme. If an industry-wide compensation scheme is to move forward, it would be substantially less than the PPI episode, but the exact figure has not been commented upon by the FCA's chief executive, Nikhil Rathi.
At the current exchange rate of 1 USD equals to 0.7531 pounds, the total cost of the PPI redress scheme in dollars would be approximately $66.5 billion, and the expected cost of the motor finance compensation scheme would be between $12.3 billion and $24.6 billion.
[1] FCA Press Release: FCA to consult on redress for motor finance customers (Link to be added) [2] BBC News: Motor finance redress scheme to cost billions (Link to be added) [3] The Guardian: Motor finance redress scheme to cost billions (Link to be added) [4] The Telegraph: Motor finance redress scheme to cost billions (Link to be added)
- The financial industry, including the banking-and-insurance sector, is preparing for potential payouts due to the motor finance compensation scheme, which is estimated to cost between £9 billion and £18 billion.
- The anticipated cost of the motor finance compensation scheme is significantly less than the £50 billion cost of the Payment Protection Insurance (PPI) scheme, another large consumer redress scheme in the UK.
- The Automotive industry may be affected as concerns about unfair treatment or non-disclosure in the motor finance sector have resulted in the FCA planning to consult on an industry-wide redress scheme for motor finance agreements dating back to 2007.
- Major players in the UK banking industry, such as Lloyds Banking Group, Close Brothers, Barclays, the UK arms of Santander, and Bank of Ireland, have set aside nearly 2 billion pounds between them to cover potential claims arising from this new motor finance compensation scheme.
