A cross-party group of MPs has accused the Financial Conduct Authority (FCA) of 'nakedly taking the side of lenders' in its proposed compensation scheme for car loan victims. The All-Party Parliamentary Group (APPG) on Fair Banking claims the regulator has been 'patently influenced' by concerns over lender profits, at the expense of consumers who were overcharged due to commission arrangements.
The APPG's report argues that the FCA's redress scheme underestimates the compensation due, suggesting borrowers are owed up to £15.6bn, rather than the £8.2bn-£9.7bn forecast by the regulator. It warns that the scheme relies on overly complex calculations that lenders could exploit while acting as 'judge and jury' on claims. The MPs criticised the FCA for repeatedly warning about impacts on profit margins, saying this prioritises lenders over consumers.
Under the FCA's proposals, banks would pay out an average of £700 per claim, far less than the £1,500 some could receive through court. However, the FCA and lenders caution that using claims firms could see borrowers lose up to 30% of compensation in legal fees. Lenders have warned that a large compensation bill could deter investors, force some firms to fold, or raise borrowing costs.
Chancellor Rachel Reeves intervened in a Supreme Court hearing in January, urging judges to avoid 'windfall' compensation. Lenders including Lloyds, Barclays, and Close Brothers had braced for a £44bn bill, but a subsequent court ruling reduced estimates. Santander UK's chief executive recently called for further ministerial intervention, claiming the FCA's proposals could harm consumers and the economy.
Labour MP Siobhain McDonagh, a member of the Treasury committee, said the FCA had been influenced by lender profit margins. 'The redress scheme as proposed is not fit for purpose,' she added. The FCA defended its approach, stating it aims to compensate customers fairly and efficiently, and wants to draw a line under the issue to ensure a trusted motor finance market.
