Regulator considers redress scheme in motor finance review

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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 as part of the growing scandal surrounding the misselling of car loans with undisclosed commission arrangements.

The FCA’s investigation has reported widespread failings in the handling of discretionary commission arrangements (DCAs), which were banned in 2021.

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

Following the ruling, 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 filed in the three months to December – including 10,957 credit card complaints. 

In today’s announcement, the FCA said: “We want to provide as much certainty as possible to firms, consumers and stakeholders.”

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. 

“It would also be more orderly and efficient for firms than a complaint led approach, contributing to a well-functioning market in the future.”

Motor finance claims could exceed £30bn

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

In January, it cautioned that any court judgments could trigger companies’ withdrawal from the sector and prevent customers from accessing credit to buy cars. 

Several of Britain’s biggest lenders have already included 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.

Rivals Santander and Close Brothers also reserved funds for potential motor finance payouts, at £295m and £165m, respectively.

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

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.

In December, 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.” 

If the Supreme Court upholds the Court of Appeal ruling, this would open the door to widespread compensation – with potentially millions of drivers affected by the scandal.