– The FCA expects to publish final rules in late March
– Simplified process could see millions receive payouts this year
– The regulator plans a three-month implementation period
– The FCA expects to publish final rules in late March
– Simplified process could see millions receive payouts this year
– The regulator plans a three-month implementation period
The Financial Conduct Authority (FCA) will attempt to simplify the planned motor finance redress scheme, with the aim of ensuring millions of consumers receive compensation payouts in 2026.
In a March 4 update, the financial regulator provided detail on the expected implementation period for lenders and brokers, alongside plans to streamline the process for both consumers and firms.
“We’re considering over 1,000 responses to our proposals for a compensation scheme for motor finance customers who were treated unfairly,” is said, adding, “If we proceed with a scheme, we are likely to make several changes.”
It said the final rules of any updated scheme will be published in late March and will cover compensation arrangements for regulated motor finance agreements taken out between April 2007 and November 2024 where commission was paid by the lender to a broker.
The FCA has previously estimated that around 85% of 14m eligible consumers will take part in the scheme, which would mean compensation payouts of £8.2bn. At that level of take-up, the estimated costs to firms of implementing the scheme would be £2.8bn, taking the total cost to £11bn.
The regulator said final decisions on the scheme have still not been taken although the latest additional detail will help firms ensure consumers receive payout promptly through outlining steps that will simplify the consumer journey and make the scheme smoother for firms to operate.
“The likely changes to the scheme were supported by many consumer groups and firms that responded to our consultation,” it said.
“As well as providing a better experience for consumers, the changes would help keep the cost of delivering the scheme proportionate, supporting a well-functioning market for the millions of people that rely on it.”
The FCA added that given the scale and complexity of the scheme and in response to feedback, it is likely to introduce an implementation period of three months, with up to five months for older agreements. Firms could choose to process claims under the scheme sooner.
Setting out proposals to streamline the process for both consumers and firms, it said that people who complained before the scheme starts would no longer be asked if they wish to opt out. Instead, within three months of the end of the implementation period, their lender will tell them whether they are owed compensation and how much.
Consumers receiving a redress offer would also be able to accept it immediately rather than waiting for a final determination. In addition, firms would not be required to write to customers via recorded delivery, with the FCA proposing to allow a range of communication channels that best meet consumers’ needs while maintaining appropriate safeguards against fraud.
The FCA said that even with a three-month implementation period, the streamlined approach would mean millions of people would receive compensation in 2026.
The potential scope of the scheme had drawn concern from the finance industry. In January, the Finance & Leasing Association (FLA) called for a more targeted approach, warning that an overly broad programme could affect future investment in UK lending markets.
Commenting on today’s update which confirmed changes to the operational aspects of any forthcoming motor finance redress scheme, Shanika Amarasekara, FLA chief executive, said: “As the FCA has pointed out, their note will help firms prepare, should the scheme go ahead. However, it also shows a much more proportionate approach to how the scheme could operate in practise. We are pleased that they listened to feedback.
“We hope to see the same proportionate approach applied to the remaining proposals so that the overall scheme, if it goes ahead, would only compensate those customers who actually lost out.”
Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA), which represents franchised car and commercial vehicle dealers across the UK, said it was encouraged that the regulator has listened to the practical concerns raised by industry stakeholders.
“We were one of many organisations to respond to the consultation process, and it is positive to see that our feedback has been reflected in key areas. In particular, the proposed flexibility around implementation timescales – including extended periods of up to five months for older agreements – recognises the operational complexity involved and will help firms deliver fair and accurate outcomes for customers.”
She added that the NFDA also welcomed the FCA’s continued engagement on manufacturer-tied relationships and its willingness to reconsider aspects that may have unintended or unfair consequences. “This demonstrates a constructive approach and an openness to working with the sector to get this right,” said Robinson.
Commenting on the FCA’s latest proposals, Richard Pinch, senior director of risk at banking & credit advisory consultancy Broadstone, said the regulator’s timeline reflected the challenge of delivering a scheme on this scale.
“The FCA’s proposed implementation period is a sensible acknowledgement of the scale, cost and complexity involved in delivering a motor finance redress scheme of this size.
“Firms will need time to review historic agreements, build out operational processes and ensure payments are calculated accurately, particularly where older agreements are involved, to maintain consumer confidence.
“Measures to streamline the process should also help reduce delays and unnecessary friction in getting payments to consumers. The changes seek to strike the right balance between ensuring customers receive any compensation they are owed and maintaining a proportionate cost for firms, which is important for the long-term functioning of the motor finance market.”
Alex Neill, co-founder of consumer rights organisation Consumer Voice, commenting, said: “It’s a victory for common sense that drivers who have already complained about motor finance will be automatically included in the scheme and receive a prompt offer of compensation. Allowing lenders more time to process older complaints will only be justified if they play fair and use the extra time to do everything possible to locate the paperwork and contact customers.
“Further changes need to be made to the scheme to ensure consumers aren’t short-changed. We are calling on the FCA to automatically include all other affected consumers through an opt-out approach and increase the compensation and compensatory interest levels to accurately reflect the true level of harm.”
In its latest update, the financial regulator also repeated its guidance for consumers who believe they were not properly informed about commission in their motor finance deal.
“Our advice remains that anyone concerned they weren’t told about commission involved in their motor finance deal should complain now. Doing so means they should get any compensation sooner. There is no need to use a claims management company (CMC) or law firm, and those who do may lose over 30% of any compensation.”
It added that it had cracked down on poor practice by FCA-regulated CMCs with over 800 misleading adverts having been removed or amended since January 2024 and that it had intervened with five CMCs causing harm: two reduced exit fees and four which had agreed to stop taking on new clients until they showed that they complied with FCA rules.
The FCA said the publication of the scheme will be issued outside market hours and that it will confirm the date in advance.