FCA: Key considerations in implementing a possible motor finance consumer redress scheme
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We're setting out some of the things we need to consider if we were
to introduce a redress scheme as part of our review into motor
finance commission arrangements. Our review More than 2 million
used and new vehicles are bought using motor finance each year. We
want to make sure the motor finance market functions well, with
effective competition, so consumers can get a fair deal. Before
January 2021, some motor finance lenders allowed brokers (usually
car dealers) to...Request free trial
We're setting out some of the things we need to consider if we were to introduce a redress scheme as part of our review into motor finance commission arrangements. Our review More than 2 million used and new vehicles are bought using motor finance each year. We want to make sure the motor finance market functions well, with effective competition, so consumers can get a fair deal. Before January 2021, some motor finance lenders allowed brokers (usually car dealers) to adjust the interest rates on financing deals offered to customers. The higher the interest rate, the more commission the broker received. This was known as a discretionary commission arrangement (DCA), and we banned this practice in the motor finance market in 2021. There have since been a high number of complaints from customers about firms failing to disclose details about commission arrangements before the ban. Firms were rejecting most of these complaints, because they believed they haven't acted unfairly and haven't caused customers to lose out. Court of Appeal decision and Supreme Court appeal The Court of Appeal decided it was unlawful in the circumstances of 3 cases for the car dealers to receive a commission (whether discretionary or a fixed percentage) from lenders providing motor finance without giving the customer sufficient information about the commission and getting their informed consent to the payment. Potential consumer redress scheme In March 2025, we said that 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. Under a redress scheme, we would set rules for how firms assess claims and calculate redress, and we would put checks in place to ensure they are following the rules. We would aim to make any scheme easy for consumers to understand and participate in, without needing to use a claims management company (CMC) or law firm. Consumers should be aware that by signing up now with a CMC or law firm, they may end up paying for a service they do not need and having to pay up to 30% in fees out of any award they may receive. Seeking views from stakeholders We've been speaking with consumer groups, firms and industry trade bodies to get their views on important issues to consider if we do introduce a redress scheme. If we do decide to propose a redress scheme, we'll publish a consultation setting out why we think it's the right thing to do and how it could work. It's not possible to predict the outcome of the Supreme Court's judgment, but we're engaging with stakeholders now and providing this update because we want to be able to act as quickly as possible once the Supreme Court has made its judgment, so we can start to bring greater certainty for affected consumers, firms and investors. For example, given the pre-consultation engagement, we may decide to have a shorter than normal consultation window (for example, 6 weeks).
Principles of a redress schemeLink to content In designing a redress scheme, we would be guided by principles, including: Read our principles of a redress scheme (PDF) There may be tensions between some of these principles, which will require us to consider how to strike the right balance. For example, if we seek to make a redress scheme comprehensive and ensure a wide range of affected consumers are included, it may mean consumers have to wait longer for redress because there are more claims to process. Views from everyone who responds to the consultation will be vital in helping us get this balance right. Scope of a redress scheme The features we'd have to consider when designing a redress scheme. Opt-in or opt-out Under an opt-in redress scheme, customers would have to confirm to their firm by a certain date that they wish to be included. An opt-in approach can be challenging. While we would seek to make it as easy for people as possible, some consumers may be unsure which firms they had agreements with. How firms should calculate redress We've seen a range of redress rates suggested. This includes some highly speculative figures by some CMCs and law firms. Some estimates have been calculated based on Financial Ombudsman decisions. We may take a different approach to calculating redress in any intervention we make. We're required to take a broad view that takes into account all our statutory objectives. This will include considering all the evidence we've gathered and the Supreme Court judgment to determine whether and how far consumers may have lost out. Any redress scheme must:
If many firms were to go out of business or withdraw from the market, this could reduce competition and could make it more expensive for consumers to borrow money to buy a car in the future. Where firms fail, customers may not get any redress, as motor finance isn't covered by the Financial Services Compensation Scheme. Have your say If you have feedback on the key principles we would use to design a redress scheme or aspects of its scope, please email motorfinance@fca.org.uk. Next steps We'll confirm within 6 weeks of the Supreme Court judgment whether we're proposing to introduce a redress scheme. If so, we'll also set out timings for when we would issue a consultation. Our consultation would set out detailed proposals for how a redress scheme would work in practice alongside draft rules, including the proposed timings for when a redress scheme would be implemented. It would include a cost benefit analysis (CBA) scrutinised by our CBA Panel of external experts. Following the consultation, we'd confirm whether we're going ahead with a redress scheme, and if so, what the final rules are. The final rules would set out when firms need to implement the scheme, which we would expect, subject to consultation, to be in 2026. We will also keep under review the rules in our Handbook we have for motor finance firms and will announce soon after the judgment if we propose any changes. |
