FCA confirms motor finance redress scheme
AI Analysis
The FCA has confirmed an industry-wide redress scheme to compensate motor finance customers for unfair treatment due to inadequate disclosure of commissions and ties between 6 April 2007 and 1 November 2024, following court rulings on law-breaking practices. This matters as it imposes up to £9.1 billion in costs on lenders, mandates proactive customer identification and payouts, and aims for rapid resolution while providing finality for firms and market stability.
Key dates
- 6 April 2007
- 1 November 2024; Scope of agreements eligible for compensation
- 26 March 2020 Deadline
- Cut-off for excluding high commission cases if clearly disclosed (firms must explain and allow FOS challenge)
- 2026 (this year)
- Millions compensated
- 30 June 2026
- End of implementation for 1 April 2014+ loans; lenders then have 3 months to notify complainants of redress
- 31 August 2026
- End of implementation for 6 April 2007-31 March 2014 loans; lenders then have 3 months to notify complainants and 6 months for eligible non-complainants
- End of 2027
- Most remaining compensation paid
Suggested considerations
- Identify all in-scope agreements (2007-2024 with broker commissions); assess eligibility against tightened criteria (e.g., undisclosed DCA/high commission/tie).
- Contact complainants within 3 months post-implementation; eligible non-complainants within 6 months; invite scheme participation (6-month consumer response window).
- Calculate redress per formula (commission-based, capped, with interest); pay promptly, allowing set-off against customer debts where applicable.
- Gather records now (FCA expectation pre-rules); handle exclusions/exceptions with explanations; prepare for FOS challenges on time-bars.
- Brokers: Respond to lender information requests.
What changed
- - Tightened eligibility: Excludes minimal commission agreements (£120 or less pre-1 April 2014; £150 or less post), zero APRs, unused DCAs, and contractual ties where lenders prove visible manufacturer/dealer links. High commission threshold raised t
- Two schemes: Separate for 6 April 2007-31 March 2014 and 1 April 2014-1 November 2024 to mitigate legal challenges on pre-2014 powers.
- Compensation adjustments: Reflects higher 2007-2014 losses; capped in ~1/3 cases to avoid over-compensation. Redress capped at lowest of 90% commission plus interest, adjusted total cost of credit, or actual cost. Interest at average Bank of England
- Streamlined operations: Lenders contact only complainants or eligible non-complainants; no recorded delivery required, cutting delivery costs >40%. Excludes prior FOS/court cases, high-value loans (>99.5% percentile), and time-barred high commission
- Scope expansion: Covers DCAs, high commissions, and contractual ties under Consumer Credit Act 1974 ss.140A-C; includes deceased consumers.
Compliance impact
Urgency: Critical – Firms face immediate preparation needs (e.g., data gathering) ahead of mid-2026 implementation, with £9.1bn costs, mass customer outreach, and legal risks from dual schemes/challenges. Non-compliance risks enforcement, as FCA expects prompt action for market finality; delays could exceed £6bn in alternative complaint/court costs.
Who is affected
Related regulations
References
AI-generated analysis. May contain errors or omissions — verify with the original FCA source before acting. Full disclaimer.
What the FCA said
We are going ahead with a scheme to compensate motor finance customers who were treated unfairly. Courts have found that firms broke the law by failing to disclose important information to customers. An industry-wide scheme is the quickest and most cost effective way to deliver fair compensation.We had over 1,000…
Extract from FCA . Read the full notice at the source for the authoritative text.