FLA says FCA redress plans “cannot deliver fairness”

The Finance & Leasing Association (FLA) has warned that the Financial Conduct Authority’s (FCA) proposals for a section 404 motor finance consumer redress scheme would result in redress being paid to millions of customers who experienced no unfair relationship, or no loss, diverting resources away from those for whom redress is genuinely due, and is calling for a “fairer, more targeted” approach.

The association’s concerns are set out in its submission to the regulator’s consultation on compensation for auto finance consumers, which closed on 12 December.  The FLA states that the scheme as drafted “cannot deliver the fairness, simplicity, finality, efficiency or certainty the FCA set out as its own guiding principles”.

The FLA emphasised that lenders fully support a robust and credible redress programme for customers who have suffered loss, and said its members remain committed to providing prompt and full compensation to any customer who has genuinely suffered loss as a result of an unfair relationship under the Consumer Credit Act.

Recalibration

In a bid to ensure compensation is correctly targeted, the FLA says it is urging the FCA to recalibrate the scheme so that it:

• Identifies and compensates only those consumers who have actually suffered loss;
• Protects consumers’ long-term access to affordable credit;
• Avoids awarding redress where no unfair relationship arose – a practice that would undermine fairness and damage confidence in the system; and
• Is operationally deliverable within a realistic implementation period.

Arguing that any credible scheme must be fair to both consumers and lenders, the FLA argues the FCA’s current proposals rely on broad, blunt liability tests that would result in redress being paid to millions of customers who experienced no unfair relationship, or no loss, diverting resources away from those for whom redress is genuinely due.

Its response includes alternative methodologies for establishing liability and loss, and practical recommendations to ensure a scheme can be implemented efficiently. For example, the FLA says the current obligation on firms to trace, contact and send registered letters to customers who are not owed redress is “disproportionate, expensive, and risks overwhelming the system for no consumer benefit”.

“The most important point is simple: a redress scheme must provide redress to those who have suffered loss as a result of an unfair credit relationship. Where we differ from the FCA’s proposals, it is because the evidence shows there are fairer, more targeted and more efficient ways to achieve that outcome.

“All eyes are now on the regulator and the industry. The best result is one where we work together to deliver redress swiftly to those who need it, protect consumers’ future access to finance, and create a scheme that is workable and credible for all.”

The FCA has said it will publish its findings and policy decisions arising from the consultation in February or March of next year, with implementation of the redress scheme expected to start shortly afterwards.