Lords accuse FCA of “deep lack of clarity” over motor finance redress

The Financial Conduct Authority (FCA) came under heavy criticism today from the House of Lords Financial Services Regulation Committee over its handling of compensation for unfair motor finance agreements, with peers accusing the regulator of creating unnecessary complexity and cost.

Appearing before the committee, FCA chief executive Nikhil Rathi, alongside Stephen Braviner Roman and Sheree Howard, defended the regulator’s proposed redress scheme – which could cover loans dating back to 2007 – as “the most orderly and efficient way of addressing those liabilities and bringing this to an orderly and efficient close.”

However, Lord Forsyth of Drumlean, who chairs the committee, said the watchdog had “made it considerably more complicated and costly” following the Supreme Court’s judgment on car finance. Peers questioned whether the 18-year lookback was “an unreasonable and disproportionate burden on lenders,” especially as firms are not required to retain records beyond six years.

Committee members also pressed the FCA on why it had taken 11 years since assuming responsibility for motor finance to conclude that 44% of historical agreements were unfair, accusing the regulator of having “been asleep at the switch.”

Rathi told peers the FCA had acted swiftly, saying that within 48 hours of the Supreme Court ruling it had outlined next steps and launched an industry-wide consultation in October.

He maintained that “many firms broke the law” and that the proposed approach aligned with statutory limitations.

In response, the Finance & Leasing Association (FLA) said it would continue to work with the FCA to ensure the final scheme is “fair, proportionate, and sustainable.”

Shanika Amarasekara, CEO of the FLA, said: “Motor finance underpins the UK’s mobility and productivity. Getting this scheme right matters — not only to remedy past issues, but to safeguard consumers’ access to affordable credit for the future.

“The FCA assumes that inadequate disclosure of a discretionary commission arrangement is tantamount to an unfair relationship, for which redress should be paid. But many DCA customers suffered no loss whatsoever.

“A consultation of this size, complexity and economic importance would ordinarily run for three months, yet this one is being completed in just six weeks. The onus is now on the FCA to listen carefully to industry evidence — because a badly designed remedy risks creating new problems rather than resolving old ones.”