‘Serious concern’: City watchdog accused of withholding information in motor finance row
The City watchdog is coming under pressure to release its communications with the Treasury and modelling data for its controversial motor finance redress scheme, City AM can reveal.
The Financial Conduct Authority (FCA) is facing legal challenges from the finance arms of Volkswagen and Mercedes Benz as well as French-owned CA Auto Finance over its £9.1bn scheme. On the consumer side, advocacy group Consumer Voice has lodged a claim against the watchdog.
In court filings seen by City AM, the lenders argue the FCA has relied on complex economic modelling to justify its scheme, but has refused to share the data and code with affected firms or the Upper Tribunal.
“It might have been expected that the FCA would accept – even welcome – scrutiny of all its workings such that lenders and consumers alike could be satisfied that its schemes are lawful and properly grounded,” lawyers representing Volkswagen Financial Services (VWFS) said. “The FCA has adopted the opposite stance… that position is quite extraordinary, and unjustified.”
The Supreme Court partially overturned a landmark ruling on car finance deals last year, rejecting claims that hidden commissions were automatically unlawful. But it found one customer’s undisclosed commission created an “unfair relationship”, leaving the door open for an industry-wide redress scheme by the FCA.
In March, the regulator published the final outlines for its scheme which reduced lenders overall bill to just over £9bn from an estimated £11bn.
The watchdog’s legal filings brand the calls for further disclosure as “fishing expeditions”.
“The overall impression created by the totality of these disclosure requests is that Volkswagen and CAAF are simply hoping something will turn up,” the FCA’s counsel said in documents seen by City AM.
VWFS’ lawyers said the regulator’s wish to “shield its analysis from proper scrutiny is a serious cause for concern”.
Treasury’s motor finance influence facing scrutiny
Consumer Voice has attacked the regulator from the opposite perspective and accused the Treasury of having unprecedented access to the design of the redress.
In court filings, the lobby group accuses the watchdog of placing “excessive reliance on the interests of lenders” that was “fortified by the [Treasury’s] growth agenda”.
“There is no suggestion (or reason to believe) that other stakeholders [than the Treasury] were able to enter into preliminary discussions with the FCA, make in-principle decisions, communicate house views or requests, receive and comment upon draft versions of the Consultation Paper and Policy Statement or attend deep dive Teams meetings with senior officials,” lawyers said.
Consumer Voice is seeking the release of all of the FCA’s communications with the Treasury regarding the calibration of the redress. The body has previously alleged the Treasury sought to cap payouts at a level lenders could absorb. During her stint as Chancellor, Rachel Reeves sought to intervene in last year’s motor finance battle at the Supreme Court over concerns it would harm the sector but was blocked by justices.
A Treasury spokesperson said: “The FCA is operationally independent of government. Access to affordable motor finance is important for consumers, and we want to see certainty for consumers and firms so that this long running issue can be resolved in an orderly way.”
Nikhil Rathi, the boss of the FCA, told MPs earlier this year: “What we are dealing with is on one side lenders who didn’t always want to acknowledge that they had harmed consumers… and on the other side a claimants management ecosystem, which is largely seeking to generate as much profit as they can”.
A spokesperson for the FCA said: “Our scheme is the quickest, fairest and most efficient way to compensate consumers and we are defending it robustly.
“It is unfortunate the challenges have delayed payouts for consumers that were due to begin this year, especially as household bills come under greater pressure.”
They added all decisions for the scheme were taken independently.
All lenders mentioned were approached for comment.