A redress scheme is coming – and that means big compensation
Banks and motor finance firms could face significant compensation payouts as the Financial Conduct Authority (FCA) moves forward with its review of discretionary commission arrangements (DCAs).
The regulator is assessing whether firms failed to comply with rules on DCAs, potentially causing financial losses for consumers.
“If motor finance customers have lost out from widespread failings, we are likely to consult on a redress scheme,” the FCA said in a statement.
The issue gained urgency following a Court of Appeal ruling suggesting that firms could be widely liable if commissions were not properly disclosed. The Supreme Court will hear an appeal on the matter from April 1 to 3, with the FCA intervening in the case.
The regulator has committed to announcing its next steps within six weeks of the Supreme Court’s decision. If it determines that consumers were harmed, it is likely to launch a formal consultation on redress.
Under such a scheme, firms would assess whether customers were affected and provide compensation where necessary. The FCA said it would set rules and oversight measures to ensure compliance. The regulator noted that a structured scheme would be “simpler for consumers than bringing a complaint” and could reduce reliance on claims management companies, allowing customers to retain the full amount of any compensation.
The FCA also suggested that the court’s decision may influence potential rule changes for both discretionary and non-discretionary commission arrangements. An FCA update was initially expected in May, but the regulator has confirmed it will now issue further details after the Supreme Court ruling.
Earlier this year, Chancellor Rachel Reeves called on the UK Treasury to intervene in the car loan mis-selling case, warning that potential compensation payouts — estimated at £44 billion — could harm the motor finance industry and the broader economy.
While the Treasury insists consumers should be compensated for wrongdoing, it warns that excessive payouts could reduce access to affordable car loans. With 80% of new cars in the UK bought on finance, the case’s outcome could significantly impact the sector.
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