The proposal, which would offer redress for loans sold between 2007 and 2024, aims to address potential unfairness caused by inadequate information about commissions paid to brokers, including car dealers. Despite significant support for the initiative, lenders argue that the FCA’s approach does not fully account for specific circumstances in which compensation may not be justified.
FCA Responds to Industry Concerns
The FCA’s proposed compensation scheme has drawn significant attention from both businesses and consumers. Nikhil Rathi, Chief Executive of the FCA, recently addressed these concerns in front of the Treasury Committee. According to Rathi, the regulator has received over 1,000 responses to its consultation, which closed on December 12. This includes feedback from more than 800 individual consumers.
“We see a range of views and where there is good strong evidence that might persuade us to adjust what we have proposed so that we get to a fair, proportionate scheme, we will consider that evidence.” Rathi said.
He acknowledged that some aspects of the plan, particularly the criteria for when compensation would be appropriate, are still open for discussion. He highlighted concerns from lenders about the scheme’s potential to affect 0% interest loans, with some arguing that no compensation should be necessary in such cases.
The FCA’s proposals are centred around offering compensation to consumers who may have been misled about commissions paid to brokers when securing their car finance deals. Rathi’s comments reflect an openness to adapting the approach if it leads to a more proportionate and fair solution for all involved.
Lenders’ Pushback on Scheme Calculations
Several lenders, including major institutions such as Santander and Lloyds, have raised concerns about the FCA’s calculations of the losses consumers may have suffered. These institutions have argued that the FCA’s methodology for determining compensation amounts is flawed. They believe the scheme could lead to unnecessary financial strain on the industry, especially in cases where there is little evidence that customers were disadvantaged.
Despite these concerns, Rathi remained firm in his stance that the scheme must move forward, even if it requires adjustments. He stressed that lenders have a responsibility to provide constructive feedback, suggesting that simply dismissing the proposals without offering alternatives would not lead to a viable solution. “One way or another, we have to figure this out,” Rathi remarked, urging both lenders and consumer law firms to engage in finding a balanced solution.
With 14 million car finance agreements potentially affected, the FCA estimates an average compensation of £700 per customer. The scheme is expected to be launched early in 2026, but the timeline may shift depending on the final adjustments made following the consultation feedback.
The controversy surrounding the motor finance redress scheme underscores the complexities of ensuring fairness in the financial services industry. While the FCA is committed to rectifying any wrongs in the market, it also recognises the need for careful consideration of the financial impact on lenders and the broader economy. The regulator’s willingness to amend its proposals based on feedback demonstrates a balanced approach to addressing consumer harm while considering the concerns of financial institutions.
