The financial regulator’s proposed redress scheme for car finance mis-selling is “completely impractical”, the trade body for the car finance industry has said.
Stephen Hadrill of the Finance and Leasing Association (FLA) told the BBC there was concern that the redress scheme would cover loans from as far back as 2007, as firms and customers may no longer have the paperwork for that time.
On Friday, the Supreme Court ruled hidden commissions from lenders to dealers on car loans were not unlawful, meaning millions of motorists will not be able to claim for mis-selling.
However, the judgement left open the possibility of compensation claims for particularly large commissions.
On Sunday, the UK’s financial watchdog, the Financial Conduct Authority (FCA), said it would begin a consultation on who should be eligible for compensation and how much they should get in October.
It estimates the redress scheme will cost the industry between £9bn and £18bn, although individual victims of mis-selling are likely to get less than £950 per deal.
The FCA said it “anticipate[s] requiring firms as far as possible to make customers aware they may be eligible and what they may need to do” and that claims “should cover agreements dating back to 2007”.
But speaking to the BBC’s Today programme, Mr Hadrill said: “[There is] a major concern, really, about the redress scheme going back to 2007. I just think that’s completely impractical.
“It’s not just firms that don’t have the details about contracts back then, the customers don’t either.
“And, if we’re going to have to take careful decisions about who gets compensation, who gets redress, and who doesn’t – you need that information. I just think going back that far is not the right thing to do.”
He also said that the cost of a redress scheme could mean that lenders offer fewer car financing plans to customers in the near future.
“That cost will have to be absorbed somewhere.”
“Ultimately, the more expensive lending becomes, the more expensive borrowing becomes for the consumer.”
The FCA has said it expects “a healthy finance market for new and used cars to continue notwithstanding any redress scheme we propose”.
On Friday, the Supreme Court sided with finance companies in two out of three crucial test cases focusing on commission payments made by banks and other lenders to car dealers.
However, it left open the possibility of compensation claims for particularly large commissions which the court deemed unfair.
The industry is expected to cover the full costs of any potential compensation scheme, including any administrative costs.
Those who have already complained do not need to do anything, the FCA said, advising those who have yet to complain to contact their car loan provider rather than using a claims management company.