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The chief regulator of the City has hinted at likely failings by some companies in concealing commissions charged on car loans.
Nikhil Rathi, CEO of the Financial Conduct Authority (FCA), suggested that redress for these failings wouldn’t approach the scale of the infamous £50 billion bill for mis-sold payment protection insurance (PPI).
Speaking at a City conference, Rathi emphasized that it was “improbable we will find nothing to report” as the FCA scrutinizes historic motor finance sales. However, he reassured that the ensuing investigation and compensation arrangements wouldn’t mirror the prolonged and costly saga of the PPI scandal. Rathi cited the FCA’s early intervention as a factor in expediting the process, unlike the protracted nature of the PPI debacle.
The focus of the scandal lies on undisclosed commission arrangements that incentivized car retailers and motor finance brokers to promote excessively expensive credit to car buyers. The FCA outlawed these discretionary commissions in 2021 and commenced an investigation into the practice dating back to April 2007. Estimates by brokers at Jefferies suggest the sector-wide bill could potentially reach £13 billion, with major players like Lloyds Banking Group and Close Brothers bracing for financial impact.
While consumer champion Martin Lewis has speculated on the scale of the scandal, drawing parallels to PPI, Rathi affirmed a more streamlined approach to resolving motor finance failings. He stressed the importance of firm cooperation and prompt data provision, highlighting a condensed timeline for resolution.
In response to concerns about the new consumer duty’s stringency, Rathi reassured the industry, signaling the FCA’s willingness to acknowledge firms’ efforts to address concerns without seeking to impede them with technical breaches.
Moreover, Rathi indicated the regulator’s openness to banks considering charges for current accounts, sparking concerns about the end of free banking for those in credit. Despite these shifts, the FCA remains committed to fostering a fair and transparent financial landscape, balancing consumer protection with industry viability.