FCA confirms motor finance redress scheme
Executive Summary
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. #
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.
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.
Key Dates
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
References
AI-generated analysis. May contain errors or omissions — verify with the original FCA source before acting. Full disclaimer.
Summary
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 consultation responses and engaged extensively with consumer groups, professional representatives, firms, manufacturers, investors and industry bodies. While most respondents support...