By ANGHARAD CARRICK
The proposed redress scheme for car finance mis-selling is 'completely impractical', according to a leading trade body.
The Finance and Leasing Association said it had 'concerns about whether it is possible to have a fair redress scheme' that would go as far back as 2007.
It said that firms and customers may no longer have the paperwork and 'the evidence base will be patchy at best'.
Last week, the Supreme Court sided with major lenders in the car finance scandal, meaning millions of motorists will not be able to claim for mis-selling.
'Impractical': The car finance trade body said the regulator's plans were too complicated
It sided with lenders in two of three cases focusing on commission payments made to car dealers.
It left the door open to possible compensation claims for large commissions the court deemed unfair.
On Sunday, the FCA said it would consult on an industry-wide redress scheme that could begin paying out from next year.
This could be as much as £950 per car per buyer, and cost lenders between £9billion and £19billion.
Nikhil Rathi, chief executive of the FCA said: 'Our aim is a compensation scheme that's fair and easy to participate in, so there's no need to use a claims management company or law firm.
'If you do, it will cost you a significant chunk of any money you get.
'It will take time to establish a scheme but we hope to start getting people any money they are owed next year.'
However, Stephen Hadrill, director general of the FLA, today told the BBC: '[There is] a major concern really, about the redress scheme going back to 2007. I just think that's completely impractical.
'It's not just firms that don't have the details about contracts back then, the customers don't either.
'And, if we're going to have to take careful decisions about who gets compensation, who gets redress, and who doesn't - you need that information. I just think going back that far is not the right thing to do.'
He also warned that the cost of the scheme could mean lenders offer fewer car financing plans.
The majority of new cars and some second-hand cars are bought via car finance deals where drivers pay an upfront deposit, borrow the rest from a lender and pay back the loan each month with interest.
Each year some two million cars are purchased this way.
However, many dealers and brokers were paid a behind-the scenes commission by lenders for signing buyers up to these agreements, which some drivers claimed they did not know.
WHY WAS CAR FINANCE IN THE SUPREME COURT?
In October, a ruling by the Court of Appeal deemed that these 'secret' commission payments without a consumers fully informed consent were unlawful.
It considered the cases of three people with car finance deals, who argued they did not know about the commission made by their car dealers.
Some lenders challenged that Court of Appeal decision so the case went to the Supreme Court.
WHAT DID THE SUPREME COURT RULE?
It ruled in favour of lenders instead of millions of consumers. Car finance firms did not unlawfully sell products by failing to disclose commissions.
Supreme Court President Lord Reed said the court allowed the appeals brought by the finance companies.
It did uphold one claim that a customer's relationship with the finance company was 'unfair' and that claimant will be awarded the amount of commission plus interest.
Lord Reed then said 'other customers' claims are rejected'.
It's a blow for motorists who did not know about the commission payments involved in their car finance deals.
WILL ANYONE GET COMPENSATION?
THE Financial Conduct Authority (FCA) may still set up a redress scheme for those unknowingly signed up to a discretionary commission agreement (DCA) when they took out their car loans.
In a DCA, lenders allow brokers and dealers to hike interest rates on car finance to increase their commission. These were banned in 2021 by the regulator.
The watchdog has been probing DCAs since January 2024. Motorists must sit tight for six weeks as the FCA decides if it will set up a compensation scheme.
This could cost lenders somewhere in the region of £5billion to £13billion, accountancy firm BDO says.
WHAT DOES THE FCA SAY?
An FCA spokesperson said: 'We welcome that the Supreme Court has clarified the law and are grateful to the Court for delivering the judgment after the market closed.
'We will be working through the weekend to analyse the judgment and determine our next steps. We said we would set out within 6 weeks whether we would consult on a redress scheme. But we want to provide clarity as quickly as possible. So, we will confirm whether we will consult on a redress scheme before markets open on Monday 4 August.
'Our aims remain to ensure that consumers are fairly compensated and that the motor finance market works well, given around 2 million people rely on it every year to buy a car.
'If we do decide to propose a redress scheme, we'll consult widely. In designing a redress scheme, as we have previously said, we will balance principles including fairness, timeliness, and certainty.'
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