Lenders that mis-sold car finance would risk spending £6 billion ($8 billion) more if they reject the official compensation program and try to deal instead with individual complaints, the UK’s Financial Conduct Authority warned.
Without the compensation scheme that was finalized in March, as many as 19 million complaints would need to be handled individually, with millions referred to the Financial Ombudsman Service, the FCA’s Chief Executive Officer Nikhil Rathi said in a letter to the House of Commons Treasury Select Committee.
Extra costs would come from ombudsman fees, disputes over redress decisions and “modest” court costs, Rathi said in the letter dated Monday.
Read more: UK Motor Finance Scandal to Cost Lenders $12 Billion
The FCA’s payout program for motor finance customers who were charged hidden fees includes £7.5 billion in compensation and another £1.6 billion that companies must bear as the cost of implementing it. While the plan unveiled in March was less severe than some banks and analysts had feared during a series of court cases on the issue, some firms have still launched legal challenges.
The regulator said in May that it had received four challenges to its motor finance scheme, from Consumer Voice, Volkswagen Financial Services, Mercedes Benz Financial Services, and Crédit Agricole Auto Finance.
More than 90 firms have submitted their implementation plans, over 95% of lenders subject to the program, Rathi said. The largest firms, including Lloyds Banking Group Plc, have indicated they will comply with the scheme.
Rathi also said his staff “engage with relevant parties” on issues including lenders’ provisions to cover the cost of program, and the FCA is “aware of allegations by some market participants concerning the adequacy of provisioning and disclosures by some listed firms in relation to motor finance liabilities.”
Photograph: New and secondhand cars for sale in the UK; photo credit: Christopher Furlong/Getty Images
Related:
- Banks Rocked by ‘Extreme’ Car Loan Costs Gear Up for FCA Fight
- UK Car Finance Industry Faces $11 Billion-$13 Billion Mis-Selling Hit
- UK’s FCA Says Lenders Face Minimum £9 Billion Bill on Car Loans
- Is Britain on the Cusp of Another Multibillion-Pound Consumer Finance Scandal?
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