Santander has urged the Government to step in over proposals that will see lenders pay out billions of pounds to consumers unfairly sold a car loan.
It raises the bar among motor finance lenders after others raised concerns about the Financial Conduct Authority’s (FCA) plans for compensation.
Here, the PA news agency looks at what banks have said about the proposed scheme and what could happen next.
– What is the motor finance compensation scheme?
The FCA has set out proposals for an industry-wide scheme to compensate motorists who were unfairly sold a car loan between 2007 and 2024.
The regulator believes around 14 million deals are eligible for compensation, with people estimated to get an average of £700 per agreement.
This is because many customers were not properly informed about commission paid to brokers, including car dealers, and so were unable to negotiate the best deal on their loan.
– Why is Santander challenging it?
Santander’s UK chief executive said adjusting the FCA’s proposals ought to be an “active consideration for the UK Government”.
He warned that the scheme in its current form could “significantly impact jobs, growth and the broader UK economy” and risks causing “significant detriment to the consumer”.
This is because of concerns that the payouts will have an impact on the supply of credit to consumers who need a loan on their car.
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It marks some of the strongest criticism of the watchdog’s plans and directly calls on the Government to intervene before it goes ahead.
– What have other car finance lenders said?
Santander’s views build on those of other car finance lenders who have expressed concerns and said they would challenge the regulator.
Lloyds, which is a major motor finance lender through its firm Black Horse, said it does not think the FCA’s calculations reflect the amount lost by customers.
Lloyds said customers could end up getting more than 100% of the commission back.
Close Brothers, another prominent player in the industry, said it does not believe the FCA’s methodology “appropriately reflects actual customer loss or achieves a proportionate outcome”.
Under the FCA’s plans, consumers will be compensated the average of what it estimates they overpaid, and the commission paid, plus interest.
– How has the FCA responded?
The watchdog says said its free scheme is the quickest and simplest way for consumers to access compensation and for lenders to administer payouts.
“Alternatives would cost more and take longer,” a spokesman said.
“It’s vital we draw a line under the issue so a trusted motor finance market can continue to serve millions of families every year.”
Alex Neill, co-founder of consumer rights group Consumer Voice, said compensation for millions of motorists is “long overdue”.
“We urge everyone who has had car finance since 2007 to check if they’re affected and to make a free complaint,” she said.
– What could happen next?
Despite raising concerns, the lenders have stressed they are committed to getting a “fair outcome” for consumers and compensating those who lost out.
But they are challenging the watchdog’s way of assessing who was missold and how much they get back.
Lloyds said it would “make representations” to the FCA and that it was hoping to have a “constructive dialogue” about the proposals. It refused to say whether it could proceed with a potential legal challenge.
Earlier this month, The Times reported that car maker BMW was seeking a meeting with the Treasury to discuss its concerns.
Greg Huitson-Little, a partner at business advisory firm Menzies, said it was anticipating “some changes to the FCA’s proposals following industry consultation, and some pushback from the banks as they seek to limit the amounts they’ll need to pay”.
“Wholesale changes to the FCA’s framework would seem unlikely but expect some fine tuning,” he said.
The FCA said it welcomes “considered feedback” to its proposals. The scheme is expected to launch early next year.
