FCA: 2007 claims deadline will reduce costs

The Financial Conduct Authority (FCA) has sought to defend its decision to use 2007 as the starting date for any claims under its proposed redress scheme for motor finance misselling cases, on the grounds that this will ultimately reduce the costs of compensation for lenders.

In response to questions about the proposed timeframe from the House of Lords financial services regulation committee, FCA chief executive Nikhil Rathi has written to the committee’s chair outlining the regulator’s position ahead of the publication of more detailed analysis due out when the consultation on redress scheme proposals is released in early October.

Addressing the committee’s view that any redress scheme should be subject to the 6-year limitation period applying to unfair relationship claims made under the Consumer Credit Act, Rathi said that this is not applicable in circumstances where any fact relevant to a claimant’s right of action has been deliberately concealed.

To support this, Rathi noted the Supreme Court decision in Canada Square Operations Ltd v Potter, where the Court found that failure to disclose the amount of commission in relation to Payment Protection Insurance (PPI) was a fact relevant to the claimant’s right of action and that the failure to disclose the commission amounted to deliberate concealment.

In his letter Rathi stated: “We think this is likely to apply where there was inadequate or no disclosure of motor finance commission arrangements which may have prevented the consumer from making an informed decision.”

Other means

Pointing out that the FCA’s current complaints pause has included complaints dating back as far as 2007, he stated: “If any redress scheme does not include agreements from 2007 to 2014, any liability owed by firms would continue to exist and complaints dating back to 2007 currently in the system and any new complaints from that period would need to be determined through other means.”

Rathi went on to point out that “this could lead to considerable costs/inefficiency as we expect a very large number of consumers or their professional representatives would then pursue claims through the Financial Ombudsman Service and the courts, with lenders having to pay case fees and other costs and there being potentially inconsistent outcomes.”

In reaching this view, Rathi said the FCA had “taken extensive legal advice, including from external counsel”, and said the regulator will set out its modelling in more detail alongside the October consultation, including estimates of costs that would be incurred in alternative scenarios if a redress scheme was not implemented.

He went on to add: “Nevertheless, we expect the cost of resolving 2007-2014 cases outside a redress scheme could be very substantial (and quite likely substantially more than a structured redress approach), and this could take significantly more time as potentially hundreds of thousands/millions of cases would then need to be dealt with through the Financial Ombudsman or the courts.”

Rathi’s letter acknowledged two other concerns the committee raised. The first is the question of the difficulty and costs involved for lenders who need to find consumer and financial agreement data going back to 2007.

“We recognise the record keeping challenge for some firms. Since our announcement to consult, we have continued to engage widely – including with lenders, credit brokers, trade bodies, consumer groups, claims management companies, credit reference agencies and professional representatives – to gather initial views and insights. We are focused on proportionate and workable solutions to the practical issues that have been raised. The consultation will provide a further opportunity to work through these issues and refine our thinking,” Rathi said.

The second consideration is the likely impact of a redress scheme on the integrity of the UK motor finance market.

Addressing this, Rathi said: “Through our discussions with and submissions from lenders and funders, as well as consumer research, we expect that consumers will continue to want to access finance and lenders will still want to offer that finance. This does not mean that we expect no impact on the market from a redress scheme, but we expect that a range of lenders will continue offering products on terms similar to those currently available. Other lenders who do not currently offer motor finance products may also consider entry into the market.”

Read Rathi’s responses to the House of Lords financial services regulation committee here.