FLA says FCA's redress scheme 'cannot deliver fairness, simplicity, finality, efficiency or certainty'

The Finance & Leasing Association (FLA) has submitted its response to the FCA's consultation on a proposed motor finance consumer redress scheme.

The scheme is available to individuals who were overcharged due to the use of Discretionary Commission Arrangements (DCAs), a practice the regulator banned in 2021.
 
Many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans.

However, the FLA warns 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 says 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".

However, the Association 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; and
• Is operationally deliverable within a realistic implementation period.

The FLA added that "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".

For example, it 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".

Shanika Amarasekara, CEO of the FLA, said: “Our submission is the product of extensive analysis by industry practitioners, economists and leading experts from across the motor finance market.

“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.”