Financial sector warning over FCA's remedial action plan for motor loans
The Financial Conduct Authority (FCA) is gearing up to launch an industry-wide motor finance redress scheme, following a UK Supreme Court ruling that confirmed around 14 million drivers were mis-sold car finance agreements between 2007 and 2021. The FCA aims to finalise the scheme design through a consultation in October 2025, with compensation payments to consumers expected to begin in 2026.
The scheme is designed to provide a consistent, fair, and transparent process for claims, addressing concerns over missing or deleted customer records and varied redress outcomes if left to individual lenders. The FCA plans to consider factors like nondisclosure of commission, tied commercial relationships, customer sophistication, and the level of harm when determining compensation. The total estimated cost to the industry is between £9 billion and £18 billion, with most individual claimants expected to receive less than £950.
However, the proposed scheme has sparked concerns from various quarters. The House of Lords' Financial Services Regulation Committee has expressed ongoing scrutiny of regulatory frameworks and consumer protections, with common concerns including effective oversight, protecting consumer interests, and guaranteeing fair compensation distribution. While the Committee has not yet detailed specific criticisms or recommendations about the FCA’s motor finance scheme, these concerns likely inform their overall stance.
Industry players, such as the Finance & Leasing Association, have voiced concerns about the timeframe for considering cases, branding it "completely impractical." The committee has also questioned the legal grounding the regulator used to outline the timeframe for the redress scheme and raised concerns about the Financial Conduct Authority's ability to substantiate its view on the scheme's impact on the motor finance market.
In response to these concerns, the FCA's chief, Nikhil Rathi, has urged firms to refresh their estimates, ensuring they cover both liability for compensation and the administrative costs. Rathi has also pushed back against industry claims that the motor finance redress scheme is impractical. In an interview with the Financial Times, Rathi emphasised the need to help put things right for consumers.
As the FCA moves forward with its motor finance redress scheme, it remains to be seen how these concerns will be addressed and whether the scheme will indeed provide the fair, transparent, and consistent process it aims to deliver. The FCA is yet to share details of the modelling undertaken on the likely impact of the redress scheme, adding to the uncertainty surrounding the initiative.
The motor finance redress scheme, initiated by the Financial Conduct Authority (FCA), aims to provide a fair and consistent process for claims across the banking and finance industry, addressing issues within the business sector. This scheme, however, has sparked concerns from industry players and the House of Lords' Financial Services Regulation Committee regarding several factors, such as effective oversight, protecting consumer interests, and the timeframe for considering cases.
