S&U: Motor finance redress scheme must show a changed FCA
The chair of specialist lender S&U has said the motor finance redress scheme offers the UK’s financial watchdog the prime opportunity to turn its ‘regulate for growth’ rhetoric into action.
Anthony Coombs hailed the “common sense” car finance ruling from the Supreme Court as attention turns to the response by the Financial Conduct Authority (FCA).
But Coombs – who has been a critic of the regulator’s handling of the motor finance debacle – feels confident a changed FCA will be taking on the redress scheme.
“I think they realize now that a properly functioning market means that consumers get a better deal, far more effectively than some market that was heavily constrained by huge amounts of regulations,” Coombs told City PM.
S&U – founded in 1938 and once known as Sports and Utilities – imposed voluntary restrictions on its vehicle finance business Advantage last year during discussions with the FCA on its forbearance procedures for borrowers facing financial difficulties.
Coombs told the House of Lords last November the FCA “is not fit for purpose” from a motor finance perspective.
But on Monday he told City PM there “has definitely been a change of tone and tenor” in the regulator, which he “hopes persists because it is in the government and indeed the economy’s interest”.
Though the bank chair added the “regulatory maze has not gone away” and “a great deal of work still needs to be done”.
S&U signal clear road ahead
S&U recorded a near £10m hit to profit, falling to £33.6m for the financial year ending January 31 2025.
This came after Advantage suffered a £12m blow and impairment charges rose to £35.6m reflecting a near £10m increase in motor finance arrears.
But the firm said earlier this year it was “trending to be ahead of 2024 at half-year and accelerating from there”.
Shares in S&U soared over ten per cent to 1,916.75 on Monday.
Whilst the Supreme Court left the door ajar for claims under the Consumer Credit Act for high commission deals, Coombs was confident in Advantage’s standing.
“I’m not making a prediction but I really don’t think any of that is going to affect advantage,” he said.
Coombs, who served as a Conservative MP between 1987 and 1997, said he had “significant optimism” with the Supreme Court verdict a “huge step forward – no doubt about it – as was the terms of the proposed consultation by the FCA on redress”.
But he said the progress for the whole financial services industry hinged on the FCA’s ability to “effectively streamline regulation”.
‘Ghastly’ CMCs struck down
The FCA said it intends a redress scheme to remove the necessity for law firms or claims management companies (CMC).
The regulator said in the last year 225 promotions from CMCs were required to be amended or withdrawn, “including some which were highly speculative in suggesting the compensation consumers may get”.
“They’ve finally sussed these ghastly CMCs,” Coombs said, as he slammed the firms’ aggressive advertising campaigns.
“You go into the average motorway service station and go into the men’s loo – you see [the advertisements].
“It’s just disgraceful how they’ve been doing it in a very, very, very misleading way”.
Whilst banks have curbed a potentially £44bn nightmare in the motor finance saga, industry bosses have sounded the alarm on a tax raid from Chancellor Rachel Reeves in the Autumn.
One monetary reform group suggested a sector hike of £11.3bn on the top banks to fund recent U-turns by the Labour government.
Coombs said: “Given the fragile nature of consumer confidence, still in negative territory, massively negative territory. My view is [Reeves] must step very carefully, and she’s got to avoid new taxes, if possible.
“No doubt about that”.