Latest news with #NikhilRathi
Yahoo
6 days ago
- Automotive
- Yahoo
Sector shaken as FCA opens consultation into £18bn scheme
The UK motor finance industry is facing fresh disruption after the Financial Conduct Authority (FCA) confirmed plans to launch a consultation into a redress scheme that could cost lenders and brokers as much as £18 billion. The announcement — following a Supreme Court ruling last Friday — reintroduces significant financial and operational uncertainty for motor finance providers. While the FCA said most drivers would receive no more than £950 each, the total cost to the industry is now estimated at between £9 billion and £18 billion. Paul Hollick, Chair of the Association of Fleet Professionals (AFP), said: 'We've gone from a situation on Friday where the Supreme Court verdicts suggested the worst risks for the motor finance sector had been removed, to one on Monday morning where the FCA's intervention has reintroduced the possibility of quite widespread reparations.' The FCA's move relates to discretionary commission arrangements (DCAs), which allowed dealers to set interest rates on car finance agreements and pocket the difference as commission — often without the customer's knowledge. These practices were banned in 2021, but many were in place across millions of loans issued between 2007 and 2021. FCA Chief Executive Nikhil Rathi said: 'It is clear that some firms have broken the law and our rules. It's fair for their customers to be compensated.' He added that the FCA aims to build a scheme that is 'fair and easy to participate in,' with no need for consumers to use a lawyer or claims management company (CMC). 'If you do, it will cost you a significant chunk of any money you get,' he warned. Industry pushback However, several industry figures questioned the FCA's legal and practical basis for retrospective compensation — particularly when many firms operated within then-accepted frameworks. Paul Bennett, a consultant with Madox Square Advisory, was cited on LinkedIn as saying: 'This statement leaves me somewhat perplexed because, until discretionary charges were banned in 2021, financiers in concert with their introducers operated within the law. As such, how can firms be penalised in 2025 for what was accepted business practice until 2021?' Stephen Haddrill, Director General of the Finance & Leasing Association (FLA), expressed concern over the FCA's intention to look as far back as 2007. 'We have concerns about whether it is possible to have a fair redress scheme that goes back to 2007 when firms have not been required to hold such dated information, and the evidence base will be patchy at best.' Speaking to BBC Radio 4's Today programme, he added: 'I just think that is completely impractical. It is not just firms that don't have the details about contracts back then, customers don't either.' Dealers urged to review historical agreements Jonathan Butler, legal counsel at the Vehicle Remarketing Association (VRA) and partner at Geldards, said: 'We shouldn't lose sight of the fact that this is good news for dealers and lenders' given that the exposure is far less than the £44 billion feared. However, he warned of extensive preparatory work ahead. 'Dealers and lenders are now in a position where they can start to calculate their exposure. They should be tracking down all relevant paperwork dating back to the 2007 cut-off point,' Butler said. He also flagged potential legal minefields in legacy dealer agreements: 'Dealers need to read their old contracts with motor finance providers to check there is no form of indemnity in place that protects the lender in the event of claims of the type now envisaged. These did sometimes exist and, if enforced, may cause issues.' Butler added that the redress scheme could be hampered by evidentiary complexity: 'The Johnson-type threshold is actually a value judgment... These are highly fact sensitive matters and not questions that... could be easily answered using anything other than an arbitrary and automated process. It needs qualified people to make assessments... that is potentially an enormous task.' CMC industry faces collapse The FCA's announcement is also likely to have a profound effect on the claims management sector, which had anticipated a much wider liability ruling from the Supreme Court. John Perez, Partner and Head of Finance Litigation at DWF, said: 'The CMC industry that has emerged in pursuing these claims on mass will likely now collapse.' He explained that under the ruling, 'any continuing claims will all be fact dependant on the nature of the individual transactions,' meaning the days of high-volume, generic CMC-driven claims are effectively over. Perez noted the court's ruling in Canada Square v Johnson clarified that 'no disclosure of commission or partial disclosure of commission will not in itself render the relationship unfair.' Instead, courts must evaluate multiple factors — including the size of the commission relative to the total credit cost (as in the Johnson case, where it was 55%) and whether the dealer made misleading representations. He suggested the FCA may borrow from the approach taken in the PPI and Plevin redress schemes, potentially setting a commission threshold — such as 50% of the total charge for credit — above which redress would be automatic. Retail perspective: fairness and stability needed Sue Robinson, Chief Executive of the National Franchised Dealers Association (NFDA), welcomed the Supreme Court's judgment and its recognition of the sector's submissions. 'As the consumer facing part of the sector, NFDA want to see the regulator act fairly to ensure that UK consumers receive a satisfactory result. This has been achieved today,' she said. Robinson emphasised the importance of a stable retail environment, noting that 'automotive retail accounts for approximately 78% of the broader automotive workforce.' "Sector shaken as FCA opens consultation into £18bn scheme" was originally created and published by Motor Finance Online, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Sign in to access your portfolio
Yahoo
6 days ago
- Automotive
- Yahoo
Rathi hits back at claims FCA redress plan is unworkable
FCA chief executive Nikhil Rathi has pushed back against claims from the motor finance industry that the regulator's proposed redress scheme for discretionary commissions is too difficult to implement, saying lenders must stop 'haggling' and focus on delivering fair outcomes for consumers. Speaking to the Financial Times, Rathi directly addressed industry complaints that the Financial Conduct Authority's plans to compensate customers for car loans dating back as far as 2007 were 'completely impractical' due to patchy record-keeping. 'Now is not the time to haggle with us, but to help put things right for consumers,' he said. 'We know it is difficult. But you can't say the law has been broken and it is too difficult to even try to put things right.' His comments follow the FCA's announcement of a six-week consultation on an industry-wide compensation scheme, which could result in payouts totalling between £9 billion and £18 billion. The scheme is intended to address cases where customers were unfairly charged higher interest rates due to discretionary commission arrangements (DCAs) — a practice banned by the FCA in 2021 but widely used prior to that. The proposal has prompted concern within the motor finance sector, particularly around how firms will access loan and commission records from as far back as 2007. Stephen Haddrill, director general of the Finance & Leasing Association (FLA), warned earlier in a statement: 'We have concerns about whether it is possible to have a fair redress scheme that goes back to 2007, when firms have not been required to hold such dated information, and the evidence base will be patchy at best.' Legal risk contained, operational risk rises The FCA's move comes on the heels of a Supreme Court judgment on three test cases — Johnson v FirstRand Bank, Wrench v FirstRand Bank, and Hopcraft v Close Brothers. The ruling narrowed the legal basis for many claims by confirming that car dealers did not owe fiduciary duties to customers. However, it upheld findings of unfair treatment in cases where commission payments significantly inflated interest charges and were poorly disclosed. The judgment gave the motor finance sector some legal relief, as it removed the risk of a broader wave of litigation. Shares in lenders such as Lloyds, Close Brothers, and Bank of Ireland rose following the ruling. But the court's backing for the FCA's interpretation of 'unfair relationships' has left the door open to regulatory-led redress, which Rathi is now urging firms to support. 'If industry works with us, then we can get this moving quickly,' Rathi said. 'If, however, people want to continue to litigate this and have cases going through the courts for many, many more years, then of course it is going to take longer.' Redress path unclear and costly The FCA has yet to decide whether the redress scheme will be 'opt-in' — requiring customers to apply for compensation — or 'opt-out,' in which lenders proactively repay customers unless they decline. 'An opt-out scheme might take longer because firms have to go and look for all the addresses and track down customers who may have moved,' Rathi said. 'An opt-in scheme may be quicker, but will be less comprehensive.' The regulator estimates most compensation payouts will be under £950 per agreement, but the overall burden for banks and car finance providers could be significant. Fitch Ratings has estimated that lenders may be on the hook for £5 billion to £11 billion, depending on the final scope of the scheme. The remainder would likely fall to non-bank and captive auto finance firms. "Rathi hits back at claims FCA redress plan is unworkable" was originally created and published by Motor Finance Online, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Erreur lors de la récupération des données Connectez-vous pour accéder à votre portefeuille Erreur lors de la récupération des données Erreur lors de la récupération des données Erreur lors de la récupération des données Erreur lors de la récupération des données
Yahoo
6 days ago
- Automotive
- Yahoo
FCA CEO: Car Loan Lenders Face Minimum £9 Billion Bill
The UK's Financial Conduct Authority will consult on a redress scheme to guide firms on how to compensate motor finance customers that were missold car loans. CEO Nikhil Rathi tells Kriti Gupta it could leave lenders on the hook for at least £9 billion ($11.9 billion). Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
South Wales Argus
7 days ago
- Automotive
- South Wales Argus
FCA considers £950 car finance compensation for motorists
The announcement was made as many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans, the FCA said. It comes after Friday's (August 1) ruling by the Supreme Court on cases in which the FCA had intervened. While some motor finance customers will not get compensation because in many cases commission payments were legal, the court ruled that in certain circumstances the failure to properly disclose commission arrangements could be unfair and therefore unlawful, the FCA added. Our aim is a compensation scheme that's fair and easy so there's no need to use a claims management company or law firm. We'll publish the consultation by early October and finalise any scheme in time for people to start receiving compensation next — Financial Conduct Authority (@TheFCA) August 3, 2025 The UK's highest court ruled that car dealers did not have a relationship with their customers that would require them to act 'altruistically' in the customers' interest. FCA issues statement on car finance compensation scheme Nikhil Rathi, chief executive of the FCA, commented: 'It is clear that some firms have broken the law and our rules. It's fair for their customers to be compensated. 'We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal. 'Our aim is a compensation scheme that's fair and easy to participate in, so there's no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get. What can fail an MOT test? 'It will take time to establish a scheme but we hope to start getting people any money they are owed next year.' Recommended reading: The FCA currently estimates that most individuals will probably receive less than £950 in compensation. If the compensation scheme goes ahead, the first payments should be made in 2026. The final total cost of any compensation scheme is currently estimated to be between £9 billion and £18 billion, the FCA added. The consultation will launch by early October.
Glasgow Times
7 days ago
- Automotive
- Glasgow Times
Motor finance: Concerns raised that some firms' records may be ‘patchy at best'
Stephen Haddrill, director general of the Finance and Leasing Association (FLA) said: 'We have concerns about whether it is possible to have a fair redress scheme that goes back to 2007 when firms have not been required to hold such dated information, and the evidence base will be patchy at best. 'We will be interested to see how the FCA (Financial Conduct Authority) addresses this point in its consultation.' On Sunday, the FCA said it will consult on an industry-wide compensation scheme. The regulator said many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans. The FCA said it will propose rules on how lenders should consistently, efficiently and fairly decide whether someone is owed compensation and how much. It estimates that most people will probably receive less than £950 in compensation. The consultation will launch by early October and if the compensation scheme goes ahead, the first payments should be made in 2026, the regulator has said. Speaking on BBC Breakfast, Nikhil Rathi, chief executive of the FCA said: 'We're going to have to work through those issues in the consultation where one or the other party doesn't have all the details. 'That is one of the challenges here.' Mr Rathi told the BBC: 'My message to the industry is – work with us, help us find solutions to some of these issues and don't try and haggle on every single point. If we want to get this up and running, get trust back into this market, let's get moving now and sort this out in the consultation.' The Financial Ombudsman Service (FOS) can already look at complaints going back to 2007. The FCA has said that people who have already complained do not need to do anything. Consumers who are concerned that they were not told about commission and think they may have paid too much for their motor finance lender should complain now, it has said. The regulator has said that people do not need to use a claims management company or law firm and doing so could cost them around 30% of any compensation paid.
