FCA ‘worked backwards’ to justify motor finance redress, say lenders
A trio of motor finance lenders have accused the City watchdog of “working backwards” to justify its redress scheme that is set to cost the industry billions.
In new documents, Mercedes-Benz’s financial services arm, which has set aside as much as £400m in payouts for the car mis-selling scandal, said the Financial Conduct Authority’s (FCA) “one-size-fits-all approach” across all segments of the market “risks sowing the seeds of failure for the scheme as a whole”.
The watchdog introduced the £9.1bn scheme following last year’s Supreme Court judgment that rejected claims that hidden commissions were automatically unlawful, but found one customer’s undisclosed commission created an “unfair relationship”. The decision opened the door to an industry-wide redress program.
It has sparked fury across the aisle with three industry groups and advocacy firm Consumer Voice lodging legal challenges to overthrow the scheme believing it has misinterpreted the top Court’s ruling.
“The approach taken is the result of the Authority having started from the erroneous conclusion that such arrangements were harmful and working backwards in order to justify that view,” Mercedes-Benz said in its reply to the regulator’s defence.
The firm said “overmuch emphasis” had been placed on the regulator’s “expertise as the sector regulator, implicitly suggesting that substantive errors of law can and should be disregarded if there are policy reasons to do so”.
An FCA spokesperson said: “Our scheme is the quickest, fairest and most efficient way to put £7.5bn back in consumers’ pockets 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.
“We will respond fully to these challenges in court.”
FCA tells lenders to put right the fact they broke the law
The FCA has said it plans to “robustly” defend the scheme with hearings slated for as late as February 2027 in the Upper Tribunal.
Following the announcement of the program in March, the regulator’s boss Nikhil Rathi said: “It’s time for lenders to put right the fact they broke the law.”
The watchdog suspended parts of the programme in July, which anticipates an average payout of £830 for motorists, as it hopes to fend off the challenges.
Volkswagen Financial Services, which is fighting alongside Mercedes to kick out the scheme, said: “The FCA’s approach… is based mostly on the repeated invocation of the mantra of ‘regulatory judgement’ as some kind of impregnable shield against the applications.”
It argued because borrowers under motor finance agreements do not themselves pay commission, there was no commission to be “repaid” to the borrower.
The FCA branded the lenders’ interpretation of the redress as “absurd,” and said they wanted to “let the foxes guard the hen house”.
Credit Agricole, the third member of the industry trio seeking to overturn the scheme, said the “idiom is both misplaced and, worse, indicates and fundamental misunderstanding by the FCA of the nature of its power”.
In separate filings by Consumer Voice, the Treasury was accused of seeking to cap payouts for consumers at a level lenders could absorb. The FCA rejected this and said all decisions were taken independently.