Motor finance redress developments in a nutshell

The publication of the Financial Conduct Authority’s Motor Finance Redress consultation on a redress scheme for the long-running discretionary commission crisis, has brought clarity but not a sigh of relief for lenders and brokers.

The FCA estimates that around 44% of consumers, accounting for 14 million car finance agreements signed between April 2007 and November 2024, could be eligible for redress, generating average payouts of about £700 each.

This headline figure risks setting unrealistic expectations among borrowers, said Wayne Gibbard, partner at Shoosmiths. The FCA now forecasts the total compensation bill to be £8.2 billion, and the cost to lenders could reach £11 billion.

Its 360-page consultation runs until 18 November, but it has already defended its decision to backdate the start of eligible claims to 2007. The FCA acknowledged that record keeping would be an issue for some lenders, but told a House of Lords committee that “the cost of resolving 2007-2014 cases outside a redress scheme could be very substantial (and quite likely substantially more than a structured redress approach), and this could take significantly more time as potentially hundreds of thousands/millions of cases would then need to be dealt with through the Financial Ombudsman or the courts.”

The consultation prompted Lloyds Banking Group to set aside a further £800 million to cover the cost of compensating customers. The bank criticised the proposed scheme, which it said, neither reflects the actual loss to the customer, nor ensures that consumers are compensated proportionately and reasonably where harm has been done.

The Finance & Leasing Association said the remedies in the FCA’s consultation “are so broad that they will compensate customers who suffered no loss – effectively ignoring the requirement for proportionality on the part of the regulator.”

Meanwhile, BMW Financial Services UK has increased its provision for compensation from £70 million to £206.9 million.

As lenders examine their historic lending practices, other potential issues are arising. Close Brothers, for example, has made a £33 million provision for “a proactive customer remediation programme in motor finance, where we have identified historical deficiencies in certain operational processes in relation to the early settlement of loans.” This is in addition to the £165 million set aside to settle commission disclosure claims.

Elsewhere, the UK automotive market reported more positive news. New car sales surged by 13.7% in the key plate-change month of September to reach 312,891 registrations, their best performance since 2020. And in the used car market, Autotrader tracked only the second period of year-on-year growth since August 2023, following two years of price contraction.

But light commercial vehicle sales, a bellwether of the economy, continued to decline, down -2.1% year-on-year.

Neither new car nor van sales are on course to meet the percentages of electric models required by the Zero Emission Vehicle Mandate.

However, seven out of the 10 fastest-selling used cars in September had electric powertrains, offering a glimmer of hope to vendors that the two-year slide in EV residual values may be slowing. Nonetheless, the Association of Fleet Professionals has named urgent support for the second-hand EV market its number one aspiration for November’s Budget.