The Johnson case, in which it was found the value of the commission relative to the loan was unfair, means this factor, too, will be considered, as will the nature of the commission.
Alongside this, a major part of the FCA’s review will be deciding what is an unfair commission payment, where that payment was not disclosed to the consumer, such as, for example, the 55% in the Johnson case.
The FCA says in calculating compensation it will be informed by the degree of harm a customer suffered while considering the need to ensure that affordable loans for vehicles can continue to be offered. The Supreme Court decided the appropriate remedy in the Johnson case was the repayment of the commission. The FCA says it will consider this option alongside alternative remedies, but these are unlikely to exceed the full repayment of commission and could actually lead to lower payments.
The FCA estimates most claimants will receive less than £950 in compensation per finance agreement to which interest of around 3% (per year) will be added.
Following the ruling, the values of the major banks soared as the City realised the size of the compensation bill they faced had more than halved in size. This alone should tell car buyers who apply for redress that their chances of achieving it are much reduced.
Added to this are the challenges facing the FCA’s scheme, including the near-impossibility of lenders being able to produce documents relating to older finance agreements, many completed back in 2007.
Philip Salter, former FCA director of retail lending, said: “The FCA’s statement is broad and complex. The Supreme Court provided legal clarity, but the challenge for firms now will be preparing for an immense operational and financial task.
“The FCA’s approach requires firms to analyse their whole historical loan book against a complex matrix of ‘unfairness’.”
Others criticised the problems of establishing consumer loss. John Phillipou, chairman of the Finance and Leasing Association, said: “The outline of the redress scheme is impractical. I understand the ‘doing right’ by the consumer, but one of the things is showing loss to consumers. That’s going to be hard to prove.”
