Emma RadmoreIn the light of the Supreme Court judgment of 1 August, the FCA has confirmed it will consult on a redress scheme. It says it is clear that there have been breaches of the law and its rules where motor finance firms did not provide customers with relevant information about commission paid by lenders to motor dealers.
Its press statement notes that the effect of the judgment was to confirm that many payments were legal, so that some customers will not be entitled to compensation under the scheme, in others the failure properly to disclose the arrangements could be unfair.
The FCA says it thinks most individuals will probably receive less than £950 in compensation per agreement and that the total cost of the scheme is likely to be somewhere between £9 bn and £18 bn.
The FCA will consult in early October for 6 weeks on the parameters of the scheme and if it then goes ahead with it, expects the first payments to be made in 2026. It will be proposing that the current stay on complaints responses due to expire on 4 December 2025 will also be extended in line with its proposed redress timetable.
The FCA says the Supreme Court agreed with several factors the FCA had identified that could point towards a relationship being unfair and therefore in breach of the CCA – and that there are several factors that need to be taken into account in each case, including the following – but noting that non-disclosure of the commission will not necessarily make a relationship unfair:
- the size of commission relative to the charge for credit – given the Supreme Court finding that 55% was a “powerful indication” of an unfair relationship;
- the nature of the commission – including whether it is discretionary – the FCA will propose that the scheme covers DCAs and will consult on which non-DCA arrangements should be covered;
- the characteristics of the consumer;
- compliance with regulatory requirements; and
- the extent and manner of disclosure.
Any redress would depend on non-disclosure of all these and the interaction between them. The scheme will need to make it clear how firms should assess whether a relationship was unfair and, if so, how much compensation is due. That will depend on the degree of harm the consumer suffered but balanced by the need to ensure consumers can still get affordable car loans.
In terms of timing, the FCA will propose the scheme covers arrangements from 2007, to be consistent with what the FOS can consider.
It stresses again that customers do not need to use any claims management or law firm to help them claim compensation as this would cost them around 30% of any compensation they are awarded. It also stresses that customers who have already complained don’t need to do so again, but those that haven’t and think they may be affected should complain now. It has not yet decided whether the scheme would be on an opt-in or opt-out basis.
For firms, the FCA says they should now refresh their estimates, to make sure they cover liability for both compensation and administrative costs.