Millions of UK drivers could be eligible for compensation under a major motor finance redress programme, with average payouts estimated at £830. The Financial Conduct Authority (FCA) has now raised concerns that many lenders are not adequately prepared to process claims and deliver payments.
The warning comes as the regulator continues work on a scheme that could see billions of pounds returned to consumers who were affected by certain motor finance commission arrangements between 2007 and 2024. The programme remains subject to legal challenges, yet the FCA has stressed that firms must continue preparing for implementation.
According to the FCA, 12.1 million motor finance agreements are eligible under the proposed scheme, with total compensation expected to reach £7.5 billion if around 75% of eligible consumers make a claim.
FCA Raises Concerns About Lenders’ Preparedness
The FCA has written to more than 100 motor finance firms after reviewing their plans for handling complaints and compensation payments. In correspondence reported by City AM, the regulator said it was “very concerned” about the operational readiness of many firms.
According to the letters, a significant number of implementation plans were not capable of supporting “timely and accurate redress payments”. The FCA also highlighted concerns about reliance on underdeveloped systems and processes, as well as insufficient oversight of third-party and automated operations.
The regulator has warned firms that it intends to publish examples of both good and poor practice in the coming weeks. Motor finance providers are also expected to take part in discussions with the watchdog as preparations continue.
Toby Hall, the FCA’s director of scheme supervision, said firms should continue preparing despite ongoing legal uncertainty. He stated that consumers and financial markets need confidence that complaints will be handled “consistently, efficiently and fairly”.
Industry participants have acknowledged the scale of the exercise. One source cited by City AM noted that banks have experience of large redress programmes, while some vehicle manufacturers may be facing such an operation for the first time and will need to develop their processes quickly.
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Eligibility Rules and Ongoing Legal Challenges
The compensation scheme relates to motor finance arrangements involving commission structures that were not clearly disclosed to customers. According to the FCA, consumers may qualify for compensation if they were not properly informed that a dealer or broker could influence interest rates to earn additional commission, if commission levels were particularly high, or if a tied arrangement existed between a dealer and lender.
The regulator confirmed on Monday that average compensation is expected to be £830 per successful claimant, although individual payments will vary. This figure is higher than the £695 average previously discussed, despite the number of eligible agreements being revised down from 14.2 million to 12.1 million.
According to the FCA, lenders will have three months after the implementation period ends to inform complainants whether compensation is due and how much they will receive. Firms will only contact consumers who have not already complained if they are likely to be entitled to redress.
The scheme continues to face opposition. Mercedes-Benz, Crédit Agricole Auto Finance and Volkswagen have all challenged the proposals. Consumer Voice, represented by Courmacs Legal, is also pursuing legal action. Major lenders including Lloyds Banking Group, Barclays and Close Brothers have already set aside substantial provisions to cover potential costs. Meanwhile, the FCA has said it will defend the scheme “robustly” as legal proceedings continue.
