The motor finance compensation scheme, legally aimed at lenders, may place significant financial pressure on dealers.
Despite a lower than expected volume of claims and lower overall cost, there are concerns about the fairness of the treatment of dealers.
Jon Butler, Vehicle Remarketing Association legal counsel and partner at Geldards, said: “There are some aspects here that lenders and dealers can be pleased about – notably, the volume of claims is lower than previously indicated and the overall cost has been reduced by a reasonable amount. Also, some sensible measures have been introduced such as a de minimis limit on claims and the removal of zero interest agreements from the scheme.
“However, there remain issues. At a fundamental level, whether dealers have been treated fairly or unfairly remains an open legal question. Also, dealers continue to face a significant data and evidence burden and, while this is outside the FCA’s remit, remain exposed to attempts by lenders to share some of the forthcoming financial burden.
“The question facing the motor finance sector both as individual companies and a whole is whether to deem this a reasonable compromise and comply with the scheme, believing it best to put the whole episode behind them, or to mount a legal challenge?
“It seems not unlikely that the latter route will be followed by at least some which, working by the timetable outlined by the FCA, means that at least some payments could be delayed until at least 2028.”
Speaking to Motor Trader last month Christopher Baylis and Professor Henry Blair of Motor Industry Legal Services (MILS) shared the same view.
“As we’ve discussed in this Surgery many times, the uncomfortable truth for the retail motor sector is that this compensation scheme remains lender-facing in its legal form, but it will almost certainly become dealer-facing in its economic reality.
“Once finance houses begin processing historic files and paying out compensation at an industrial scale, they will naturally hunt for ways to mitigate their losses. They will inevitably look downstream to their broker networks.”
