UK FCA to consult on motor finance consumer redress scheme

The UK Financial Conduct Authority (FCA) has issued a statement alongside a press release confirming its intention to consult on a motor finance redress scheme for consumers affected by unfair commission arrangements. This follows the UK Supreme Court's ruling on 1 August. The FCA states that its aim is to create a redress scheme which is fair and easy for consumers to participate in, so there is no need to use a claims management company or law firm. In its statement, the FCA confirms that the consultation, expected in early October, will consider the following topics as set out below.

• Scope and design of the redress scheme. It will consider how firms should assess whether the lender-borrower relationship was unfair and what compensation to pay, as well as the size of commission that may signal unfairness if not disclosed. The consultation will look at how a range of factors must be assessed together when deciding on whether the relationship was unfair, including if and how factors such as the non-disclosure of the nature and size of the commission, tied commercial relationships and customer sophistication should be factored in.
• Discretionary commission arrangements (DCAs) and non-discretionary commission arrangements (non-DCAs). The consultation will propose that the scheme covers DCAs that were not properly disclosed and certain non-DCAs.
• Redress calculation and interest. The consultation will cover potential methodologies and remedies, whether there should be a de minimis threshold for compensation payment eligibility, and a proposed interest rate per year based on the average base rate that year plus 1%, which would be in the ballpark of a simple interest rate of 3% per annum.
• Timeframe. The FCA believes the scheme should cover agreements dating back to 2007, to be consistent with the complaints the Financial Ombudsman can consider and to ensure the scheme is comprehensive.
• Opt-in or opt-out scheme. The consultation will weigh up the benefits and drawbacks of each approach.
• High commission. The FCA will consider what size of commission in the context of the overall finance arrangements may point towards unfairness if not disclosed.
• Complaints deadline. The FCA will consult on further extending the current deadline of 4 December for firms to provide final responses to relevant motor finance complaints, to align with the timetable for compensation payments of the proposed redress scheme.

The proposed scheme is expected to launch in 2026 and will be guided by the Principles that were published in June. The FCA also notes that the final cost to industry will depend on the scheme's design, redress methodology and consumer participation, making precise estimates premature at this stage.

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