Criticism of motor finance compensation measures turned down by FCA leader
Motor Finance Redress Scheme in the UK: A Comprehensive Overview
The Financial Conduct Authority (FCA) has announced plans to launch a public consultation in October 2025 on an industry-wide redress scheme for motor finance customers treated unfairly, particularly focusing on commission arrangements that incentivized higher interest rates or were unfairly nondisclosed. The scheme, planned to become operational in 2026, aims to address grievances that have contributed to the highest number of complaints to the Financial Ombudsman Service (FOS) since the PPI scandal.
The FCA is currently refining the redress approach, with details such as eligibility thresholds, compensation methodology, and whether the scheme will be opt-in or opt-out still under consideration. The consultation will shape the final form of the redress scheme as the industry prepares for its launch next year.
The proposed redress scheme covers agreements dating back to 2007 and is estimated to cost the industry between £9 billion and £18 billion. The average compensation per claim is expected to be around £950. This figure reflects claims dating back to 2007.
There is political and industry pressure surrounding the scope and scale of the scheme. Some members of the House of Lords’ Financial Services Regulation Committee have urged the FCA to limit the claims period to six years to balance consumer fairness with lending market stability and reduce logistical difficulties related to investigating very old agreements.
Customers will have the option to participate in the scheme or pursue court claims individually. The FCA, under the leadership of Nikhil Rathi, has pushed back against claims that the redress scheme is impractical, stating that it is not completely impractical.
The Supreme Court's ruling on a case seeking to overturn a ruling that it was unlawful for banks to pay a commission to a car dealer without the customer's informed consent has resulted in a significant stock boost for city banks. Chancellor Rachel Reeves has been actively involved in the saga, having previously attempted to intervene in the Supreme Court case and exploring routes to overturn an adverse ruling.
Following the Supreme Court ruling, Nikhil Rathi, head of the FCA, has urged banks to cooperate in the motor finance redress scheme. A Treasury spokesperson has stated they will work with regulators and industry to understand the impact of the Supreme Court's ruling for both firms and consumers.
Notable financial institutions such as Close Brothers and Lloyds Banking Group have experienced significant gains as a result of the Supreme Court's ruling. Close Brothers soared over 20% on the back of its legal win, adding an extra £120m to its value, while Lloyds Banking Group bolstered its market capitalization by over £3.5bn and surged to a five-year high.
In conclusion, the motor finance redress scheme in the UK is a significant development aimed at protecting consumers and addressing historical grievances in the motor finance industry. The FCA's consultation, scheduled for October 2025, will shape the final form of the scheme, which is planned to become operational in 2026. The estimated costs of the redress scheme are between £9bn and £18bn, lower than the previously feared £44bn.
- The Motor Finance Redress Scheme in the UK, focused on unfair treatment in motor finance, will have implications for the broader banking-and-insurance industry.
- The proposed redress scheme, estimated to cost between £9 billion and £18 billion, is expected to cover agreements dating back to 2007, with an average compensation per claim of around £950.
- The Finance Conduct Authority (FCA) is currently refining the redress approach, considering eligibility thresholds, compensation methodology, and whether the scheme will be opt-in or opt-out.
- The scheme's impact on the real-estate and stock-market sectors could be significant, as demonstrated by the surge in market capitalization of financial institutions like Lloyds Banking Group following a Supreme Court ruling related to the scheme.
- The FCA's motor finance redress scheme is part of a larger effort to protect consumers in the finance industry, aligning with the focus on fair practice and investment in sectors such as business and finance.
