UK regulator warns car finance firms against low-ball redress offers (updated)

Volkswagen AG

Tue 10:22

Barclays first UK bank to offer early motor finance payout
Compensation should meet terms of partly-suspended scheme - FCA
Early payout offers likely to affect small pools of customers
FCA's £9.1 billion redress scheme faces legal challenges in 2027 
Adds details of number of Barclays customers affected and further lenders exploring early offers, paragraph 6, context throughout
By Kirstin Ridley
LONDON, Nov 3 (Reuters) - Britain's financial watchdog on Tuesday warned motor finance lenders against offering motorists low-ball compensation offers for a 17-year mis-selling scandal, as Barclays BARC.L became the first UK bank to confirm plans for some early settlements.
The Financial Conduct Authority, whose £9.1 billion ($12.2 billion) compensation scheme for unfair commissions has been ensnared in legal challenges, has welcomed industry ideas on how to leapfrog legal delays by paying fair redress early. 
     But the FCA said lenders should offer customers no less than they would have received through its now partially suspended compensation scheme, as it set out its minimum expectations for how lenders should structure any letters to motorists.
     Barclays, which has set aside £430 million to cover car loan liabilities, said some customers, whose complaints had been acknowledged by October 1, would be contacted over the next weeks with a "full and final" offer, clear information about its calculation and what acceptance would mean.
     
     EARLY REDRESS OFFER
     Barclays said its offer of early redress would allow some customers to avoid waiting for legal challenges and any subsequent FCA action. Each offer would be calculated using the FCA's redress scheme methodology, it added.
     Tens of thousands of motorists are expected to get early settlement offers. One source close to the regulator, however, said although a number of lenders were exploring early settlement offers, this would likely affect only a small number of motorists. 
     Sky News first reported that Barclays was set to start payouts early. 
     The regulator has accused the industry of failing to adequately disclose commissions and commercial arrangements between lenders and car dealerships that it said incentivised brokers to hike interest rates on loans between 2007 and 2024.
     More than 12 million car loan deals are eligible for redress, it has said.
But its plan to compensate consumers for one of Britain's costliest financial mis-selling scandals was thrown into doubt in April after Credit Agricole CAGR.PA, consumer group Consumer Voice and the financial services arms of carmakers Volkswagen VOWG.DE and Mercedes-Benz MBGn.DE launched legal challenges.
     Most of the motor finance industry, including banks such as Lloyds LLOY.L, Santander SAN.MC and Close Brothers CBRO.L, did not challenge the redress plan, although some questioned whether its scope could allow some motorists who had not suffered losses to obtain payouts.
     Meanwhile, some consumer groups and lawyers have said the average estimated payout of £829 per car loan agreement, calculated under the challenged FCA scheme, could fall far short fair compensation. 
     ($1 = 0.7460 pounds)

 (Reporting by Kirstin Ridley, Editing by Louise Heavens, Tommy Reggiori Wilkes, Alexandra Hudson)
 ((kirstin.ridley@thomsonreuters.com; +44 (0) 207 513 5666;))