FCA challenged over 2007 redress start date

The Financial Conduct Authority (FCA) is under pressure to explain its decision to use 2007 as the starting date for any redress scheme it proposes in the wake of the Supreme Court judgment in the Hopcraft, Wrench and Johnson cases, with a House of Lords select committee suggesting a much shorter six-year timeframe for compensation claims.

In a letter to the House of Lords financial services regulation committee in the immediate aftermath of the ruling, FCA CEO Nikhil Rathi conceded there was a potential “tension” in its seven key principles for devising a scheme, including how far back to go. However, Rathi maintained the 2007 date was “consistent with people’s right to take complaints to the Financial Ombudsman or pursue claims in the courts.”

Rathi wrote: “We recognise the challenge, particularly around record keeping, this presents. But it would wrong for us to say, given the Court’s findings on unfairness, that it is simply too difficult to try or that where there are records available from that period, those consumers should be excluded.

“We also note that there would be a similar record keeping challenge for consumers seeking to resolve their claims outside the scheme, whether through the Ombudsman or the courts. And that failure to include these agreements in the scheme could prolong uncertainty on motor finance for several years.”  

In his response, the committee’s chair Lord Forsyth of Drumlean challenged the FCA to spell out the legal grounding underpinning its proposed timeframe and asked what legal advice the regulator had taken.

“Given that the basis of the claims for which any compensation would be payable will primarily be based on a breach of the Consumer Credit Act, the Committee considers that a period which is aligned with the limitation period for bringing a claim in the courts, specified by the Supreme Court, may be more appropriate,” Lord Forsyth wrote.

In the committee’s view, this means a claim arising from an unfair relationship under the Consumer Credit Act (1974) should be brought within six years of the date on which the relationship arising out of the finance agreement ended.

Costs to administer

Additionally, the committee challenged the FCA to provide information about what modelling it has undertaken on the indicative cost of a redress scheme with a time frame in line with the six-year limitation period for complaints brought in the courts.

The letter also asked for details of the work the FCA has undertaken to model the administrative costs that a redress scheme covering agreements dating back to 2007 would impose on firms, which a briefing Rathi gave to analysts indicated could total “potentially several billion”, as well as details of how the regulator intends to ensure such costs are proportionate to the amount of redress paid, which the FCA puts at less than £950 for most claims.

It concluded by requesting the FCA appear before the committee in September to respond to its concerns.

The FCA has said it will consult widely on its proposals for a redress scheme, which are set to be published in early October, and which the regulator has said will be guided by its key principles of comprehensiveness, fairness, certainty, simplicity and cost effectiveness, timeliness, transparency, and market integrity.