Q. Who’s right on car finance redress – Martin Lewis or Charlie Nunn? A. They both are

Yesterday, two apparently diametrically opposed views of the likely extent of redress over car finance commissions were given.

On his ITV Show, Money Show Live, Martin Lewis suggested that the FCA had indicated that if there is to be redress, finance companies will process it automatically for all affected customers, so individuals would not need to submit a claim themselves. 

He suggested viewers could "get ahead of the queue" by putting a claim in now, but added:  "But you don't have to, if you just want to wait, if you are eligible, you should be paid out - if the Supreme Court rules saying that car finance and the way it was done should be paid out."

Just hours earlier, at a meeting of the Treasury Select Committee, Lloyds Banking Group’s CEO Charlie Nunn stated there was “no evidence of harm” from Lloyds’ car finance lending. 

Under FCA rules, firms are obliged to provide fair and reasonable redress where there have been regulatory failings. This means putting the customer back in the position they would have been in had the regulatory failings not occurred, including any consequential loss. So if there was no harm, as Charlie Nunn suggests, there would be no redress.

I believe both Martin Lewis and Charlie Nunn's statements were correct.

On Martin Lewis’s point: Under the FCA rules, where a firm identifies that it has failed to follow the FCA rules on commission disclosure (and I think we can take that to also mean follow the relevant law if the Supreme Court confirms the earlier Court of Appeal position) and this has caused loss or damage to customers, then the firm must make appropriate redress. There should be no need for customers to make claims for compensation to obtain this redress.

On Charlie Nunn’s point:  For a failure to provide adequate information about commissions to cause harm, it would need to be the case that this had led to the consumer making a mis-informed financial decision.  The relevant questions are: 

1. Had a customer been given more information about the amount of commission, or the way the commission was calculated, would they have made a different decision? 

and 

2.  If the customer had made a different decision after having more complete information about commissions, could that have saved them money?

In the case of Lloyds, from at least the time the FCA took over consumer credit, its Black Horse car finance arm has typically offered some of the lowest rates in the market. So in most cases, it seems implausible that customers could made any material savings by shopping around.

So, at that level, Charlie Nunn was right. However, I do take issue with his language.  In my view, it will not be for consumers (or their representatives) to show evidence of harm. It will be for the car finance companies to show evidence of no harm.  That means for each agreement, they will need evidenced that the rate provided was competitive with an industry benchmark rate.

That’s a challenge but still very achievable. For each year, there needs to be a standard table showing benchmark rates for similar loans and for similar customers e.g. similar credit score. Where the customer paid near the benchmark or below it, then it should be reasonable to assume there was no harm. 

In a minority of cases, customers will have paid a higher rate. In reality, had customers been given more information, only a minority are likely to have decided to find alternative finance. But if insufficient information about commissions was provided (the details of this to be confirmed by the Supreme Court) then I expect the FCA will require lenders to provide redress to cover the difference between the rate paid and the benchmark rate at the time. 

It would be a stretch to assume that no Black Horse customers are due redress if the Supreme Court confirms that more information should have been provided, but it would also be surprising if more than a small minority are (setting aside any possible token ex gratia payments to cover inconvenience). 

That’s probably also the case for most other lenders and their brokers too, including for lenders who charged higher rates for higher risk customers. But it’s risky for firms to sit back and wait for evidence of harm to be provided. The onus is very much on the industry to prove there was no harm, and the time for preparing the data is now.