The Financial Conduct Authority is preparing to establish its own scheme for compensating motor finance customers, potentially sidelining claims firms.

The City watchdog today confirmed it will set in motion an industry-wide redress scheme if the Supreme Court finds that consumers were unfairly charged commission on car loans. The FCA would consult within six weeks on an alternative means of compensation that would exclude lawyers.

The FCA said: ‘A redress scheme would be simpler for consumers than bringing a complaint. We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive. It would also be more orderly and efficient for firms than a complaint-led approach, contributing to a well-functioning market in the future.’

Under a redress scheme, the motor finance firms would be responsible for determining whether customers have lost out due to their failings and offer appropriate compensation. The FCA would set rules that firms must follow and put checks in place.

A ruling last year by the Court of Appeal raised the possibility of widespread liability among motor finance firms where commissions were not properly disclosed to customers. The Supreme Court will hear an appeal against the Court of Appeal’s judgment in early April.

Financial Conduct Authority (FCA)

FCA: Redress scheme would be simpler for consumers than bringing a complaint

Source: Getty 

The FCA has been granted permission to intervene in the case and has filed its submission with the court, which it plans to publish on 1 April. An intervention application by chancellor Rachel Reeves was refused.

One firm, Consumers Rights Solicitors, has estimated that commission was paid on 95% of UK car finance agreements before 2021. The average compensation award for mis-sold finance is around £1,600, according to reports.

There is no detail yet about whether or how claims firms could represent consumers through any redress scheme. But in a potential indicator of how such a scheme could work, the Financial Ombudsman Service (FoS) is about to start charging for compensation claims made through ‘professional representatives’.

From next month, FOS will demand a £250 per case fee to any CMC that submits more than 10 cases in a single year. If claims are successful there will a £175 refund.

’Professional representatives’ submitted three-quarters of the 16,000 motor finance claims submitted to FoS in the third quarter of 2024-25.