UK FCA response to UK Treasury committee on motor finance scheme

The UK Financial Conduct Authority (FCA) has published a response letter (dated 8 June) to a letter from the House of Commons Treasury Committee sent in May, setting out the status of the motor finance redress scheme and the implications of ongoing legal challenges.

The FCA's view is that the scheme remains the quickest and most effective way to deliver redress to affected agreements but confirms that challenges brought by certain lenders and a claims entity will delay implementation. The FCA emphasises that firms must continue preparing operationally and financially, including identifying in-scope agreements and holding adequate capital, while warning of supervisory and enforcement action where preparedness is insufficient. The letter highlights significant concerns about misconduct in the claims management sector, including misleading marketing, multiple representation and potential fraud risks exacerbated by delays, and notes ongoing regulatory intervention and cross-authority cooperation to address these issues. The FCA also welcomes ideas from firms and consumer organisations on how, despite the legal challenges, firms who want to can start paying fair redress now.

If the scheme is upheld, the FCA expects compensation payments to begin in 2027. The letter outlines alternative scenarios which may come into play if the scheme is struck down, including a complaints-led approach (which could increase costs and lead to inconsistent outcomes), and highlights the broader systemic implications for mass redress frameworks. It also draws out potential lessons for Parliament, in particular the consideration of mechanisms to reduce avoidable delay while preserving legal rights. The FCA confirms it is satisfied it has the powers to act for agreements entered into between 2007 and 2014, although some respondents indicated that an order under section 404G of the Financial Services and Markets Act 2000 would increase support for the scheme. While the FCA does not consider such an order necessary, it would not object to one being made.

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