City Regulator to Inform Drivers of No-cost Claims Process in £18bn Compensation Scheme
The City’s financial watchdog is currently embroiled in a dispute with claims management companies over a £1 million advertising initiative aimed at persuading drivers to bypass these services when claiming their portion of a massive car loan compensation scheme.
The Financial Conduct Authority (FCA) has recently declared its plan to launch a series of advertisements on the internet and radio. These ads will communicate to drivers that they do not require the assistance of claims management companies (CMCs) or legal firms to apply for their share of the £18 billion compensation package proposed by the regulator.
This compensation program is designed to address the issue of millions of drivers who paid excessive charges due to dubious commission practices among lenders and automobile dealerships. This follows a decision by the supreme court in August, which supported one of the three consumer grievances concerning commissions.
To promote this message, the regulator has enlisted digital influencers like Cameron “Cazza” Smith, who will explain to consumers that they can apply for compensation without any cost and should avoid signing up with claims companies that could take as much as 30% of their compensation in fees.
Nevertheless, claims companies have criticized the FCA, accusing it of yielding to major banks’ pressures to minimize their compensation expenses, thereby nudging consumers towards accepting undervalued compensation offers.
The FCA has indicated that borrowers might expect to receive no more than £950 per complaint under its scheme.
Darren Smith, the Managing Director of Courmacs Legal, a law firm based in Blackburn that claims to be handling 4 million car finance claims, stated, “We have always advocated for a redress scheme that is fair, transparent, and consumer-oriented. Instead, it seems the FCA is aligning more with the interests of large banks, pressing victims to accept insufficient offers through their redress scheme, possibly not reflective of the actual damages incurred.” He emphasized that motorists should have the liberty to consult lawyers, particularly if there’s a chance of securing a significantly larger compensation through legal proceedings.
Lizzy Comley, Chief Operating Officer at the claims law firm Slater and Gordon, expressed concerns that the FCA’s advertising campaign might undermine the critical role of law firms in safeguarding consumer rights, especially for vulnerable borrowers who might struggle to file complaints on their own.
In response to queries about potential legal actions concerning the advertisement campaign, another firm, Bott and Co., mentioned, “We are currently evaluating the content of the campaign to ensure its message is fair, balanced, and accurately reflects the complexities involved. We are keeping all options open to maintain the integrity of our profession.”
Claims companies and law firms have long been at odds with the banking sector, having previously been labeled as opportunistic before gaining prominence following the payment protection insurance (PPI) mis-selling scandal. High street banks have accused CMCs of fostering a culture of claims in Britain, submitting numerous unwarranted claims, and exploiting consumers who could have easily lodged complaints independently.
Earlier this summer, the City watchdog expressed concerns about some “troubling” practices by certain claims firms, whose aggressive marketing strategies on social media may mislead consumers about the motor finance scandal, potentially leaving them financially worse off.
Bobby Dean, a Liberal Democrat MP and member of the Treasury committee, voiced his apprehension that the FCA’s campaign might unjustly tarnish all claims companies. “We must remember that without the efforts of some reputable law firms, many of the unfair practices eligible for compensation might never have been exposed,” he remarked.
An FCA spokesperson clarified, “Only about half of the consumers are aware that they don’t need to use a CMC or law firm to claim. It’s crucial they are informed to make a decision and understand that using such services could reduce their compensation. Our consumer campaign is designed to provide them with the necessary information to make an informed choice.”
Regarding financial preparations for potential compensations, Lloyds, the largest motor loan provider through its Black Horse division, has already set aside a total of £1.2 billion. Santander UK has allocated £295 million, while the specialist lender Close Brothers has reserved £165 million. FirstRand, owner of UK car lender MotoNovo, has allocated £122 million, and BMW’s financial arm has earmarked £200 million to date.
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