Lloyds CEO: car finance redress hits “investability”

Charlie Nunn, group CEO of Lloyds Banking Group, which provides 16% of all car finance in the UK, has heavily criticised Financial Conduct Authority (FCA) proposals for a redress scheme for motor finance misselling cases as “not proportionate”, saying it puts both future lending in the sector and the investment attraction of the UK at risk.

In response Nunn said that while he welcomed the FCA intervention as important in ensuring stability, “I don’t think the scheme as proposed is proportionate, nor is it setting the right standard for a remediation programme.”

Nunn agreed with Grabiner’s view that the 2007 starting date was a particular cause for concern, arguing that “this could result in a significant number of consumers receiving a windfall outcome which is not linked to harm and is not fully proportionate.”

The regulator has sought to argue that the scheme should go back to 2007 because the Supreme Court case which found partially in favour of one claimant rested on the provisions of the Consumer Credit Act (CCA) around “unfair relationship”, which are not subject to a six-year limit on bringing an action, rather than on other points of law.

Grabiner cited information which suggested 60% of the documents provided to car purchasers which are under scrutiny advised buyers that a commission was or might be payable.

“That puts the fair-minder reader of the contract on notice, so there is no justification for breaching the six-year limit if people failed to do anything, but the FCA assumes even if they were on notice, all consumers enter the 18-year lookback,” Grabiner said.

Nunn, who labelled the CCA provisions as “more aggressive than any other jurisdictions in the fifty countries I’ve worked in around the world”, said Lloyds was undertaking a very detailed review over the full life of the data the lender held, pointing out that simply looking at commission rates ignored whether or not a particular buyer got a good deal. This depended on a range of factors including car trade/in values, cost of credit, discounts and added services.

Turning to broader issues, Nunn said the financial services sector as a whole needs predictable standards, and difficulties arise if those standards change retrospectively. “If the UK is to be an investable destination, then we need clarity around regulation.”

Nunn cautioned: “Having a scheme like this, that would take away more than 20 years of the profitability of [the car finance] sector.

“It’s a really difficult issue for both global companies looking to invest in the UK and, for that matter, my investors looking to invest in financial services. So there’s a deeply important investability issue for the UK, we think, coming out of this.”

 As a result, there are concerns that the cost and/or availability of credit for some parts of the auto finance market will be affected.

The FCA has announced an extension to the deadline for its consultation to December 12 and is now expected to release final details of the redress scheme in February or March next year.

The House of Lords financial regulation committee session is available online. The section covering car finance starts at 10.59am.