Britain's financial watchdog said on Thursday it wanted to avoid the use of claims management companies in any compensation scheme for mis-sold car loans in what could be the country's next multibillion-pound consumer finance scandal.
The Financial Conduct Authority is awaiting a Supreme Court verdict likely due in July on whether to uphold a previous ruling that several car finance schemes were unlawful, which could require a compensation scheme for millions of customers.
Some analysts say the fallout could be the costliest for banks since they paid almost 40 billion pounds ($54 billion) in compensation for mis-selling payment protection insurance.
The FCA said it aimed to make any redress scheme comprehensive, swift, and easy for consumers to take part in, without using claims management companies that take a chunk of compensation in fees in return for helping with a claim. Such companies touted for business heavily in the PPI scandal.
The FCA also signalled that some estimates about potential compensation were too high.
"We've seen a range of redress rates suggested. This includes some highly speculative figures by some CMCs and law firms," it said.
Banks including Lloyds Banking Group (LLOY.L), Close Brothers (CBRO.L) and Santander UK (SANS_pa.L) have together already set aside more than 1.5 billion pounds to cover potential claims.
Shares in Close Brothers and Lloyds were little changed in early trading.
Banks have argued a too-punitive scheme could harm a market that customers rely on to buy cars, and damage Britain's appeal as an investment destination for financial services.
The FCA said it was setting out its thoughts on a potential redress scheme so it could move quickly if needed, but hadn't decided whether consumers might have to opt into any scheme or would be automatically included unless they opt out.
Darren Richards, head of the insurance, regulatory and risk advisory division at Broadstone, said that was a key issue that would affect the volume of complaints.
($1 = 0.7370 pounds)
