LONDON: The United Kingdom’s motor finance industry is expected to pay about £2bil less for a revised redress programme for consumers who were missold car loans.
The Financial Conduct Authority (FCA) has “modestly” tightened the conditions for borrowers to receive compensation, meaning 12.1 million loans are eligible, down from 14.2 million last year, according to a statement on Monday outlining the final shape of the compensation plan.
Lenders should expect to pay £7.5bil in compensation, down from £8.2bil previously, and the estimated costs of running the “streamlined” redress scheme are now 40% lower, the FCA said.
This means the programme is set to cost the industry £9.1bil overall, down from £11bil in the previous version.
That approach will cheer affected firms, including banks such as Lloyds Banking Group Plc and car firms with lending operations such as Mercedes-Benz Group AG.
The industry has spent months arguing that the regulator’s proposals were too strict and failed to take proper account of last year’s Supreme Court ruling.
“It’s not as bad as it could’ve been if they’d stuck their heels in,” said Gary Greenwood, an analyst at Shore Capital Group Ltd.
Firms have already set aside billions of pounds to pay affected customers. Lloyds has taken the largest known provision, at almost £2bil. Mercedes-Benz, Bank of Ireland Group Plc and Barclays Plc are among the firms to have taken nine-figure charges.
“There’s nothing stopping lenders moving tomorrow if they wanted to,” though they are likely to take some time to digest the details before repaying customers, Nikhil Rathi, chief executive officer of the FCA, said on a media call.
“We’re going to be holding the lenders’ feet to the fire.”
Under the new version of the programme, the FCA said the average redress payment will rise slightly to £829 per customer, up from about £700 in the original plan. — Bloomberg
