The Financial Conduct Authority (FCA) has outlined key considerations for implementing a potential redress scheme for consumers affected by mis-sold motor finance agreements, particularly those involving Discretionary Commission Arrangements (DCAs). These arrangements, banned in January 2021, meant that some brokers increased their commission by increasing interest rates without adequately informing customers.
1. Objectives of the Potential Redress Scheme
The FCA aims to ensure that any redress scheme:
- Provides fair and consistent compensation to affected consumers.
- Is implemented in an orderly and efficient manner to prevent market disruption.
- Reduces reliance on claims management companies (CMCs), ensuring consumers receive full compensation without unnecessary fees.
2. Scope and Eligibility
The potential scheme would primarily cover consumers who entered into motor finance agreements involving DCAs before the ban in January 2021. However, the FCA is also considering the implications for non-DCA commission arrangements, especially in light of recent court rulings.
3. Legal Context and Ongoing Proceedings
A Court of Appeal ruling in October 2024 deemed it unlawful for car dealers to receive undisclosed commissions from lenders. This decision is currently under appeal at the Supreme Court, with a decision pending following a hearing in April 2025. The FCA has been granted permission to intervene in this case to provide expertise.
4. Financial Implications for Firms
Estimates suggest that compensation payouts could range between £13 billion and £44 billion, depending on the scope of the scheme. Major banks, including Lloyds, Barclays, and Santander, have already set aside substantial reserves in anticipation.
5. Complaint Handling Extensions
To manage the potential influx of complaints and ensure consistency, the FCA has extended the deadline for firms to respond to motor finance commission complaints until December 4, 2025.
6. Emphasis on Consumer Communication
Under the Consumer Duty, firms are expected to communicate clearly and transparently with consumers about commission arrangements. The FCA highlights the importance of providing information in plain language and at appropriate times to enable informed decision-making.
7. Record-Keeping Requirements
Firms are required to maintain and preserve records relevant to motor finance agreements, especially those involving commission arrangements. This obligation applies regardless of whether a consumer has lodged a complaint.
8. Next Steps
The FCA plans to provide further updates on the potential redress scheme following the Supreme Court’s decision, expected in mid-2025. In the interim, firms should prepare for possible implementation by reviewing their practices, ensuring compliance with communication standards, and maintaining adequate financial resources to address potential liabilities.
For more detailed information, you can refer to the FCA’s official statement: Key considerations in implementing a possible motor finance consumer redress scheme.
