Paying for incorrect car finance payments should not let lenders go out of business, UK regulators say

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UK financial regulators warn that a remuneration scheme for clients, which was false auto finance, must avoid industry destabilization and reduce record payment expectations.

Financial Conduct officials on Thursday outlined plans for possible relief schemes and said that businesses should not be removed by paying large sums to customers.

“If many companies go out of business or withdraw from the market, this could be… in the future it could be more expensive for consumers to borrow money to buy cars,” the FCA said. Regulators said they would balance prioritization with customer equity, but added that if a company fails, customers will not receive compensation.

The automotive finance scandal compensation regime is expected to be one of the biggest of its kind. Analysts at HSBC estimate that lenders will cost as much as £44 billion.

The regulator will determine details of the scheme within weeks of the expected Supreme Court ruling this summer, on whether the bank has broken the law by paying a secret committee to the car dealership without client informed consent.

The FCA warned that claims management companies and law firms had a “relief rate range” that included “very speculative numbers” being advertised to clients. Other numbers were calculated based on the decisions of the Ombudsman. This is said that the FCA could ignore it.

The relief scheme requires banks to lose coverage and actively contact customers who provide coverage. This is an approach that proves more expensive for the industry than waiting for an individual to file a complaint.

The FCA said it hopes that any relief scheme is comprehensive and fast, making it easier for consumers to make billing easier without resorting to billing management companies that have been heavily promoted to businesses during previous scandals.

Regulators are conducting a review of the UK compensation framework as requested by the Treasury to find out how to avoid repeating such “mass relief events” in the future.

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