The Financial Conduct Authority (FCA) recently launched its consultation on a proposed motor finance redress scheme, which could see affected customers receive average compensation of around £700 each. 

The initiative aims to address concerns around unfair commission practices in historic motor finance agreements—an issue that has drawn significant public and regulatory attention.

The Core Criteria

The proposed scheme will apply to motor finance agreements that meet any of the following criteria:

1. Discretionary Commission Arrangement (DCA):
   Brokers varied the customer’s interest rate to increase their own commission.
   
2. High Commission Structures:
   Where the broker’s commission exceeded 35% of the total cost of credit or 10% of the loan amount.
   
3. Exclusive or Contractual Ties:
   Situations where lenders had exclusive or near-exclusive agreements with certain brokers, potentially limiting competition.

Under the FCA’s plans there will be presumption of unfairness, unless lenders are able to provide evidence the criteria above did not apply.

The Data Gap

While fairness to consumers is at the heart of the FCA’s approach, the practical challenges for lenders are evident.  The scheme will apply to finance agreements dating back as far as 2007, meaning many firms will need to retrieve, reconstruct, or verify data on finance agreements incepted more than 15 years ago. 

Lenders’ data retention policies will have been designed around the regulatory guidelines and financial compliance standards in place at the time, not in anticipation of a retrospective redress scheme.  Moreover under GDPR, firms are required to retain personal data only for as long as necessary for the original purpose of collection.

As a result, data gaps are inevitable.

The focus for leaders will now be on how compensation is to be calculated and the avoidance of non-redress costs – which could be extensive if lenders are required to reconstitute missing deal data to a large extent.

Considering the Role of Dealers

While consumer fairness is rightly at the core of this process, there is also a need to reflect on the role of vehicle dealers in these transactions. Many dealers operated within frameworks provided by lenders, and their commercial decisions—and particularly use of DCAs—will often have been made to help customers secure the lowest payment.

For example, a dealer might have adjusted a part-exchange valuation and used a higher interest rate to offset negative equity, enabling the customer to purchase a new vehicle. These were not always acts of exploitation; often they represented creative financial structuring to make deals viable.

Looking Ahead: Balancing Fairness and Sustainability

Motor finance plays a vital role in ensuring consumers have access to the vehicles they need—and in turn allows dealers to sell vehicles.

Ultimately, achieving fairness for consumers must go hand-in-hand with ensuring that the motor finance ecosystem remains functional, trusted, and resilient. The industry needs to engage constructively with the FCA consultation to help shape a scheme that meets both objectives.

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