Regulator considers redress scheme in motor finance review

In a statement this morning, the Financial Conduct Authority (FCA) has outlined its next steps in its motor finance review – including an industry-wide redress scheme if the Supreme Court upholds last year’s Court of Appeal ruling.

The UK’s top court is expected to hear the appeal in early April. It is part of a growing scandal surrounding the misselling of auto loans with undisclosed commission arrangements through car dealerships.

In an investigation that dates back to 2021, the body has reported on widespread failings in the handling of discretionary commission arrangements (DCAs) – which were banned back in 2021.

The FCA said: “We want to provide as much certainty as possible to firms, consumers and stakeholders.”

Earlier this month, motor finance complaints hit record levels, with the Financial Ombudsman Service (FOS) reporting that 18,658 new car loan cases had been made in the three months to December – including 10,957 credit card complaints.

In 2024, the Court of Appeal ruled that customers who were not properly informed about these commission arrangements could be entitled to compensation.

The ruling laid the groundwork for motor finance lenders being legally responsible for making sure that commission structures are transparent.

Chancellor Rachel Reeves had tried to intervene in the case, following fears from the Treasury that fallout from the scandal would damage the economy.

It cautioned in January that any court judgments striking the banks with fines could trigger a withdrawal of companies from the sector and prevent customers from accessing credit to buy cars.

Ratings agency Moody’s predicted that consumer claims could be north of £30bn.

Several of Britain’s biggest lenders set aside payout provisions in their annual results, with Lloyds leading the pack at £1.1bn – a combination of £450m put aside in 2024 and £700m in 2025.

The provisions hit the bank’s balance sheet, leading it to record a £6bn pre-tax profit, missing analyst estimates of £6.5bn.

The firms rivals Santander and Close Brothers also reserved funds for potential payouts, at £295m and £165m respectively.

After the UK Supreme Court dismissed Reeves’ intervention shares in Close Brothers sank as much as nine per cent, with Lloyds falling four per cent.

Back in December, the FCA boss Nikhil Rathi told affected customers that they should complain – in front of a select committee whose Chair Meg Hillier described the scandal as “one unholy mess”.

The FCA added: “A redress scheme would be simpler for consumers than bringing a complaint. We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive.