FCA “patently influenced” by lenders in redress scheme

MPs have slammed the Financial Conduct Authority (FCA) proposals for an industry-wide consumer compensation scheme covering car finance mis-selling, claiming the regulator has “patently been influenced by the profit margins of the lenders when deciding upon levels of redress”.

The All-Party Parliamentary Group (APPG) on Fair Banking has published a report, Car Finance Scandal: Assessing Redress looking at whether the scheme adequately compensates affected consumers, acts as a deterrent against future misconduct, and restores confidence in the car finance sector.

Its conclusion is: “Rather than siding with consumers in deciding the levels of redress the regulator appears to have nakedly taken the side of lenders, working to protect their profit margins rather than the pockets of consumers.”

Flaws

The APPG identifies a number of flaws in the FCA redress scheme of which it says “the first and perhaps most intractable” is the what it sees as the regulator’s proposal that “lenders act as judge and jury on whether customers qualify for redress”.

It takes issue with the proposal that lenders should be able to use a number of rebuttals to claims for compensation, such as:

• The lender assessing that the customer was granted the lowest interest rate in the pricing framework
• The lender satisfying itself that it was not unfair not to disclose the DCA
• The customer did not suffer any loss In circumstances “where it could be argued that the existence of a tied arrangement would have been obvious to the consumer from the circumstances of the transaction”
• The customer is sophisticated
• Situations where “a broker claims that a higher commission was justified because of additional work done.

According to the APPG, this throws into question how genuinely independent such a redress scheme will be. 

In addition, the group is unhappy with what it sees as the complexity of the method for calculating payment. It maintains that the FCA’s favoured approach to quantum has been to blend an assessment of commission paid with loss suffered, arguing that “while the first is relatively simple, the second is fiendishly complicated”.

In the APPG’s view, this will almost certainly require a customer to go to extraordinary lengths to respond to information requirements from finance companies, which it says “may be impossible or impractical to achieve, particularly in circumstances where it is the lender who controls much of the key documentation.”

Size of compensation

The APPG cites current FCA estimates which suggest under the scheme, 85% of consumers will get an average payout of £700 resulting in a total cost of redress payments of around £8.2bn. However, it compares this to the FCA figure of loss produced in 2019, which was £1,100. When multiplied by the number of mis-sold agreements across the period, 14.2m, this produces a figure of £15.6bn.

The APPG report, sponsored by consumer law firm Courmacs Legal, states: “On this basis lenders will emerge from this mis-selling scandal having made a profit in the region of £7.4bn. This would not only be manifestly unfair, it would also be hugely detrimental for financial stability and consumer confidence.”

The report also says that using existing legal precedent Courmacs Legal calculated that where a victim of car finance mis-selling would get just £518 for the average DCA case, the same payout at court would average around £1,500, both sums including compensatory interest and net of costs.

Using Courmacs’ analysis, the APPG calculates: “Multiplied up across its book of claims the figures are staggering.  Redress under the FCA scheme for the 4m claims would total £1.9bn, against £6bn if those same claims were assessed through the courts.”

As a result, the report also takes aim at the FCA’s information campaign suggesting consumers should not engage lawyers or CMCs when making redress claims.

“It has issued press releases, engaged influencers and started an advertising campaign urging consumers not to use professional advisors when making compensation claims. In circumstances where we are already seeing an eroding of the advised route to justice, such as through the imposition of higher fees on cases brought to the FOS which are represented, this is troubling. The FCA needs to be seen as impartial, something that is threatened if it is seen as giving advice that could prejudice consumers and favour firms over individuals,” the report states.

Interest rate

The way in which the FCA plans to calculate the compensatory interest rate has also raised MPs’ ire, with the APPG describing this as one of the regulator’s “most consequential, and controversial, decisions”. The proposal is to set the level at Bank Rate plus 1%. Across the period this works out as a blended rate of 2.09%, which the APPG says is well below the judicial norm of 8%.

“This decision on compensatory interest has arguably done more to favour the industry against the interests of the consumer than any other point in the proposed redress scheme. We estimate it has shaved as much as £4bn from the total redress bill, across the period,” the report said.

Conclusion

The APPG sums up its research by saying: “Our framework called for genuinely independent administration, full transparency, broad eligibility, simple and accessible processes that do not load evidential burdens onto victims, and a standing, arm’s-length mechanism instead of bespoke fixes for each scandal.

“By contrast, the FCA model lets lenders act as judge and jury through subjective, document-heavy rebuttals that leave consumers navigating opaque tests while firms hold the key evidence. It also under-compensates by blending methodologies that tend to deliver lower awards and unusually low compensatory interest, favouring sector balance sheets over full restitution and meaningful deterrence.”

The FCA said in a statement: “We have proposed a scheme to fairly compensate motor finance customers in a timely and efficient way. We recognise that there will be a wide range of views on the scheme and not everyone will get everything they would like. But we want to work together on the best possible scheme and draw a line under this issue quickly.

“That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year.”

The FCA’s proposed redress scheme has transformed the conversation in UK auto finance. Join us at the AFC UK Autumn Conference on 25th November at County Hall, London, where industry leaders will unpack how the consultation has unfolded, share early feedback, debate what comes next, and map out how firms can prepare for a likely 2026 go-live. Hear from experts including Wayne Gibbard (Shoosmiths), Alex Hughes (CA Auto Bank), and representatives from the FLA and BVRLA. Find out more and register now: https://afcconferenceuk.com/Nov25/en/page/home-page-autumn-25