Consumer rights organisation, Consumer Voice, is preparing to sue the FCA over its £9.1bn compensation scheme for victims of mis-sold car loans.
The group claims the scheme undercompensates drivers and prioritises banks' interests over consumer protection.
Consumer Voice says the FCA’s car finance redress scheme could leave millions of consumers out of pocket by several hundred pounds per claim.
It is set to apply to the Upper Tribunal for a review of the scheme under section 404D of the Financial Services and Markets Act 2000. This will be the first time an FCA redress scheme has been subject to such a challenge.
Consumer Voice believes the FCA should give drivers the chance to access a redress scheme that "fairly reflects the harm they suffered, with properly calculated compensatory interest".
In a statement, the organisation said: "Most consumers will receive redress based on a complex ‘hybrid’ redress calculation that is fundamentally flawed and significantly underestimates the true harm suffered."
Consumer Voice believes consumer redress has been minimised in order to protect lenders in a way which wrongly minimises the consumer protection objectives of the FCA.
As part of the challenge the group is recommending that the operation of the Scheme can be commenced, apart from the rules which concern redress, whilst the Tribunal determines this challenge on an expedited basis.
Consumer Voice concluded that "getting it wrong now would mean underpayment for millions of people to the tune of billions of pounds and raises real concerns that the wrong doers will never be properly held to account".
Alex Neill, co-founder of Consumer Voice, said: “We are taking this unprecedented step to challenge the regulator’s redress scheme because it doesn’t deliver fair or lawful compensation for drivers. We support a redress scheme being put in place, but as it stands millions of people will be under-compensated, and the lenders involved in this scandal won’t be meaningfully held to account.
“The FCA has designed a scheme that leaves ordinary motorists hundreds of pounds per claim out of pocket. That cannot be left unchallenged.
“The FCA has treated the Supreme Court’s judgment in Johnson as a rigid benchmark in order to exclude most consumers from receiving full commission redress, even though the Court itself acknowledged it was a fact sensitive decision. Its methodology relies on APR benchmarks that underestimate the real harm people suffered, and its interest calculations fall hardest on those who could least afford to be overcharged in the first place.
“Consumers have been let down by the lenders who mis-sold them car finance. They should not be let down again by the regulator that is meant to protect them. The FCA must fix the scheme and deliver the fair redress that millions of UK motorists are owed.”
The FCA responded: “It seems contradictory that organisations claiming to represent consumers would seek to delay payouts for millions of people.”
Kevin Durkin, head of legal practice at HD Law, accused the FCA of hypocrisy for their reaction. He said: “It sits ill in the mouth of the FCA to reference delay when it has been investigating this area for almost ten years before setting down a clear policy only last month.
“I welcome this challenge to the FCA's flawed motor finance compensation scheme. The concerns being raised reflect obvious issues with the scheme, which, in its current form, leaves many consumers undercompensated.
“Given the paucity and inadequacy of the scheme, HD Law is not surprised it is being challenged. It is right that these matters are now being tested.
“The current scheme simply does not have the general public’s needs at the forefront. While a judicial review may result in a short-term delay, we hope it can deliver a fairer, more equitable outcome for consumers overall. Let’s hope that any potential delay results in more money in the public’s pockets. Short-term pain for long-term gain.
“If the challenge succeeds, it could ensure that affected individuals receive the compensation they deserve, reinforcing trust in the process. Let’s just hope that this is expedited swiftly.”
