Drivers pursuing compensation through the FCA’s motor finance redress scheme could face delays until at least October, legal experts have warned, after four separate legal challenges threw the scheme’s terms into doubt.
Solicitors from Barings Law, which represents around 90,000 drivers, have also warned that some consumers should expect more than the average £830 payout by pursuing separate affordability claims against their lenders.
It comes after the firm secured a payout of £22,000 for a motorist who was approved for two unaffordable car loans.
Barings said that the FCA was trying to steer drivers away from similar cases, which can be settled directly with lenders, the Financial Ombudsman Service or through the courts.
Solicitors added that separate legal challenges brought by Consumer Voice, Mercedes-Benz, Volkswagen and Crédit Agricole have forced lenders to prepare for the possibility of a “no scheme” scenario, despite the FCA previously positioning the redress scheme around speed and simplicity.
Since announcing the scheme, the FCA has urged consumers to avoid using law firms or claims management companies, warning that claimants who do so face being excluded from redress.
In a response to the FCA, Barings noted that the proposed redress scheme only exists because law firms first brought claims against lenders over undisclosed commissions, culminating in last summer’s Court of Appeal ruling in Johnson and subsequent pressure for an industry-wide compensation scheme.
Robert Whitehead, Chairman at Barings Law, said: “The FCA’s scheme will work for some clients with lower value claims who want a quick outcome, but it represents a compromise for most.
“This is a scheme designed to limit the liability of the lenders rather than fairly compensate consumers.”
Delays to the redress scheme are now raising questions about its true value for consumers if compensation is no longer expected to arrive quickly, particularly as some motorists may have other legal claims available to them beyond the commission complaints covered by the FCA scheme.
Robert Whitehead continued: “Many consumers remain unaware that they can, in certain circumstances, also claim against their car finance company based on whether or not the finance was affordable in the first place.
“Such affordability claims will not be covered by the redress scheme and have not been publicised by the FCA, so many consumers would potentially never know that they are owed this money, which could be far higher than a commission claim.”
Barings Law said its affordability claims department is currently securing average damages of approximately £4,800 per claim, with some settlements exceeding £22,000.
In one recent claim, the firm helped a driver secure a £22,207 settlement after being wrongfully approved for two separate vehicle finance agreements. The customer, who has not been named, was left facing repayments of nearly £29,000 on a BMW worth around £19,000, and repayments of £35,000 on a van valued at £22,000.
Barings said that the agreements should never have been approved in the first place, given the customer’s wider financial circumstances at the time.
Robert Whitehead, Chairman of Barings Law said: “What we are seeing through affordability claims is that some people were given finance they were never realistically going to be able to sustain.
“In some cases, the financial impact goes far beyond what many people would expect from a standard compensation payout.
“The concern now is that consumers are being pushed towards a simplified compensation process without fully understanding that other options may be available to them – which can sometimes lead to significantly better outcomes.”
