UK FCA update on legal challenges to motor finance redress scheme

The UK Financial Conduct Authority (FCA) has published a statement providing an update on the legal challenges to its motor finance redress scheme. The FCA confirms that, despite ongoing litigation (with a hearing unlikely before October), it continues to view the industry-wide scheme as the quickest and most effective route to deliver fair compensation and intends to defend it. It will provide a further update as soon as possible. In the meantime, firms are expected to continue preparatory work for implementation, including: (i) identifying relevant complaints; (ii) gathering data on commission arrangements and disclosure practices; (iii) working with claims companies to resolve instances where consumers are represented by more than one party; (iv) cooperating with the UK Financial Ombudsman Service (FOS) on any existing complaints that have been referred to it; and (v) submitting implementation plans (without formal attestations required) by 12 May. At the same time, the FCA is also considering whether, where complaints include both elements within the scheme and elements unrelated to motor finance commission, firms should progress the unrelated elements. Complaints that fall entirely outside the scope of the scheme should continue to be progressed in the usual way.

Given uncertainty over the scheme's future, the FCA has set out contingency planning expectations, including preparing for a scenario in which no scheme proceeds. In this case, complaints would be handled through a complaint-led and supervisory framework from around mid-November, with no further extension to the existing complaints pause. If the scheme is quashed (in whole or in part), the FCA will consider its options, including whether to proceed with a revised scheme, noting that this would likely require further consultation and could be subject to further challenge.

The FCA emphasises the need for firms to be operationally and financially prepared for the above outcomes, while continuing to cooperate with the FOS and support consumers.

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