UK: FCA Faces Questions Over £11bn Motor Finance Redress Plan

The Financial Conduct Authority’s (FCA) proposed compensation scheme for millions of UK motor-finance customers is emerging as one of the largest redress programmes ever launched by the regulator. Yet during a detailed analyst call this week, officials faced pointed questions about the reliability of their data, the scale of projected costs, and the design of a process that relies heavily on consumers actively choosing to take part.

The plan, which follows years of legal disputes over commission disclosure in car finance, is expected to cover more than 14 million agreements made since 2007. The regulator’s working assumption is that roughly 85% of eligible customers will participate once contacted by lenders, resulting in total compensation of about £8 billion and a further £3 billion in administrative costs. Together, that implies an £11 billion bill for the industry.

FCA chief executive Nikhil Rathi told analysts that the regulator’s analysis had been limited by incomplete information from lenders. Many finance firms could not provide details of the minimum interest rates or exact annual percentage rates charged on individual loans, forcing the FCA to use broad models based on patterns from tens of millions of historic agreements. The data gaps, he said, meant the regulator had to construct an evidence base that was representative rather than comprehensive.

At the heart of the scheme is a simple principle: if a customer paid more because a dealer or lender failed to disclose a commission arrangement, that customer should receive a fair refund. The compensation formula aims to reflect the estimated difference between deals with discretionary commissions and those on fixed fees. In rare cases where undisclosed commissions were exceptionally high and tied to specific contractual relationships, the FCA proposes returning the full commission amount plus interest.

Consumer participation will be critical. Those who have not yet complained will be invited to opt into the scheme once contacted by their lender, while those who already lodged complaints will be included automatically unless they choose to opt out. Rathi said the regulator’s consumer research showed strong awareness of the issue but also lingering confusion about eligibility and process.

Surveys conducted for the FCA suggest that most borrowers now know they may be entitled to compensation, but many remain unsure who received the commission on their original deal or how to submit a claim. Roughly four in ten respondents said they might hesitate because they found the process unclear or time-consuming. Even so, most indicated they would prefer to claim directly rather than use third-party firms or claims managers.

Analysts on the call questioned whether the assumed participation rate was realistic given that some of the loans date back nearly two decades. The FCA countered that most major lenders hold sufficient customer data to make contact and can supplement it with information from credit reference agencies. The regulator also expects technology and automation to reduce processing costs over time.

The potential financial impact varies widely across the sector. Banks and car manufacturers’ in-house finance divisions are expected to bear the largest costs, while smaller independent lenders may face limited exposure. Industry sources estimate that around a fifth of the expected total relates to operational expenses such as staffing, systems upgrades, and quality assurance.

Despite the controversy, the FCA argues that a structured, regulated scheme will ultimately be less costly and faster for consumers than prolonged litigation. It also aims to restore confidence in a market that, according to the regulator’s own research, remains an essential part of household credit.

The consultation on the proposal runs until mid-November, with final rules expected early next year and payments likely to begin later in 2026. Officials insist that the priority is to conclude the issue quickly and consistently. Whether the market—and its millions of affected borrowers—shares that optimism will depend on how smoothly the data, technology, and participation challenges can be resolved in practice.

Source: CMS