FCA outlines key considerations for potential motor finance redress scheme

The Financial Conduct Authority has detailed issues it would need to address if it introduces a consumer redress scheme for historic motor finance commission complaints.

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The Financial Conduct Authority (FCA) has published a statement outlining the key factors it would need to consider if it proceeds with an industry-wide consumer redress scheme relating to historic motor finance commission arrangements.

The regulator’s review focuses on discretionary commission arrangements (DCAs), which were banned in 2021. Before the ban, some lenders allowed brokers — typically car dealers — to set interest rates on motor finance deals, earning higher commission when charging higher rates. Since then, the FCA has seen a significant volume of complaints from consumers who say they were not properly informed about commission structures. Many of these complaints have been rejected by firms.

A Court of Appeal decision found that, in three cases, it was unlawful for dealers to receive any form of commission without adequately informing the customer and obtaining their consent. The final outcome will depend on the forthcoming Supreme Court judgment, which the FCA said it cannot predict.

In a statement published on 5th June, the FCA said: “If, following the outcome of the Supreme Court judgment, we conclude motor finance consumers have lost out, it’s likely that we’ll consult on an industry-wide consumer redress scheme.”

The regulator said such a scheme would set rules for how firms assess claims and calculate redress, while aiming to be simple and accessible for consumers without the need for legal or claims management company involvement. It warned that consumers signing up with a claims firm now risk paying up to 30% in fees for a service they may not need.

The FCA added that it is engaging with consumer groups, firms and trade bodies to gather views. It may shorten the consultation period to 6 weeks once the Supreme Court rules, to act quickly in providing clarity to consumers, firms and investors. If a scheme is proposed, it would be implemented in 2026, subject to consultation.