Firms must revise motor finance provisions as FCA prepares redress scheme

Motor finance firms need to "refresh their estimates" of the amounts they are likely to pay to customers under the redress scheme which will start next year. Administration costs must also be factored into their provisions, according to the regulator, which will launch a six-week consultation in early October.

By Neasa MacErlean

The Financial Conduct Authority estimates "that most individuals will probably receive less than £950 in compensation per agreement" and added: "It is unlikely any alternative would lead to higher remedies overall than full repayment of commission. Some could lead to lower payments." However, the FCA is considering its usual practice of including interest on top of redress sums and expects to consult on an interest rate for each year using prevailing base rates plus one per cent. It suggests this would be a "ballpark" figure "of a simple interest rate of 3% per annum". The total industry cost is projected to be around £13.5 billion, but could range between £9bn and £18bn, with the top end being seen as not "the most likely".