Another lender warns of consequences of FCA redress scheme

Important update: The FCA redress scheme is partially suspended

This article was written before recent developments around the FCA’s redress scheme. If you entered into a motor finance agreement between 6 April 2007 and 1 November 2024, please note the following:

• The redress scheme is partially suspended: The Upper Tribunal will hear four challenges to the scheme between 16 and 26 February 2027. Lenders are not currently required to calculate or pay redress, and payments are not expected to begin until 2027 at the earliest. Your lender should write to you if you have already complained and you are not owed compensation, although the FCA says some consumers may not be told until the legal process concludes.
• Revised eligibility estimate: The FCA now estimates that 12.1 million agreements are eligible for compensation, down from the 14.2 million estimated in its 2025 consultation.
• Increased compensation estimate: The FCA now anticipates average redress payouts of £829 per mis-sold agreement.
• Compensatory interest changes: The regulator has introduced a minimum 3% floor for compensatory interest; however, the rate applied to awards within the redress scheme can no longer be challenged.
• You may not hear from your lender: If the scheme proceeds, contact obligations also cover certain consumers who have not complained, including those potentially owed compensation and certain time-barred cases. If you do not hear from your lender, you could still have a valid claim but risk missing out entirely.

Vanquis Banking Group has joined the chorus of car finance lenders warning of the potential consequences of the Financial Conduct Authority’s (FCA) proposed motor finance redress scheme.

But rather than citing ‘bigger picture’ concerns, echoing lenders including Lloyds Banking Group and Santander who have warned of dire economic outcomes should the regulator’s scheme proceed in its current form, Vanquis is looking exclusively inward.

What are Vanquis’s concerns about the FCA’s proposed redress scheme?

The specialist, sub-prime lender has recognised a £3 million provision for paying redress in its recently announced third quarter results.

Vanquis also cautioned that it may need to record a further £4 million provision should the regulator not update its proposals, adding that this extra sum would be ‘primarily due to increased operating costs associated with customer outreach.’

Why would Vanquis and other lenders incur customer outreach costs?

Under the regulator’s proposals, lenders would be responsible for contacting current and historical customers who had been mis-sold and were now owed redress.

One of the potential drawbacks of the regulator’s redress scheme is the lack of certainty that a lender will be able to locate consumers, particularly if they have moved, changed their name, or their agreement concluded more than six years ago and records have been destroyed. It is also unclear to what extent, if any, lenders will be obliged to attempt to locate previous customers beyond writing to them at their last known address.

The FCA’s proposed redress scheme rules also place a requirement on the consumer to respond. If no contact is made, consumers may lose out on redress unless they, either directly or through a professional representative, contact their lender with the relevant details. The present proposals also state that if no contact is made within 12 months of the start of the redress scheme that consumers will lose their right to claim.

Does the FCA have a position on lenders with lower exposure to the car finance scandal?

Not as yet, but it seems likely that it will need to develop one.

In an update on its motor finance compensation scheme consultation progress and timing, the regulator wrote that one of the issues raised so far by respondents is ‘how smaller firms or those with a low number of agreements eligible for redress can operate the scheme in a cost-effective way.’

Vanquis’s warning that it may need to double its redress provision certainly indicates that it may well fall into such a category, although the lender is unlikely to garner much sympathy from customers or external commentators.

To what extent was Vanquis involved in car finance mis-selling?

Vanquis says it did not historically use discretionary commission arrangements, which the FCA banned on 28 January 2021 and allowed car finance brokers artificially to increase consumers’ interest rates on their car finance agreement to earn a higher commission payment for themselves.

The lender also claims that it may ‘rebut’ cases it receives from consumers by demonstrating they could not have gotten a more competitive deal elsewhere.

While its position as a sub-prime lender means Vanquis was potentially more likely to be lending to consumers who indeed were unable to secure car finance via alternative means, whether a consumer could have gotten a better deal elsewhere is unlikely to be relevant if Vanquis offered them a high commission arrangement, which the regulator defines as 10% of the total loan amount and 35% of the total cost of credit.

What have other lenders said about the regulator’s proposals?

Since the FCA announced its consultation into its proposed redress scheme on 7 October 2025, lenders have continually attacked the regulator and used the press to claim that the proposed redress scheme is unfair to them, with Santander even calling on the government to intervene in the scheme on lenders’ behalf and Lloyds Banking Group saying it will fight car finance payouts. We predict that as we move towards the end of the consultation period that lenders’ lobbying efforts will increase.

It is also possible that lenders will attempt to challenge the regulator’s redress scheme when it is finalised, with some already refusing to rule out such action, despite the Supreme Court rulings in the Johnson, Wrench and Hopcraft cases providing clear legal clarity and precedent.

What provisions have other lenders made for car finance redress?

Many of the lenders’ attacks on the regulator have come alongside announcements recognising additional redress provisions.

Lenders to recently record further sums for paying redress and other associated car finance mis-selling costs include:

• Lloyds Banking Group. Lloyds is the UK’s biggest provider of motor finance via its Black Horse brand and has now made provisions totalling almost £2 billion.
• Barclays. The bank, which ceased lending in the motor finance sector in 2019, near-quadrupled its provision from £90 million to £325 million.
• Close Brothers. This lender raised its provision to £300 million.

When does the FCA car finance redress scheme begin?

On 5 November 2025, the regulator, citing feedback received to date on its proposed methodology of calculating redress and other issues relating to the scheme, announced an extension to the consultation until 5pm on 12 December 2025. The consultation was initially planned to close on 18 November 2025.

The regulator says it expects to publish its final rules in February or March 2026. We would anticipate that the scheme would commence shortly after publication of the rules, subject to any further legal action taken by lenders, and that compensation payments will commence in mid-2026.

What is Harcus Parker’s position on the redress scheme?

It is of significant concern to us that lenders may be left to calculate unrepresented consumers’ compensation payment free of scrutiny or accountability, which would leave them receiving a figure that is an estimate or average and not a true representation of their actual loss.

We think that the FCA’s response to the motor finance scandal has in many ways been impressive, and it is undeniably the case that as a result of it many more consumers will receive compensation than if there were no scheme. Nevertheless, we believe that the proposed structure introduces unintended complexity and uncertainty and we well understand why some consumers prefer to instruct advisers to handle their claims rather than trust to the outcome of the scheme.

Can I start a car finance claim with you?

Yes.

While you do not need to instruct a professional representative to receive your car finance mis-selling redress, there are several reasons why you may wish to do so.

You can check your eligibility and register for the claim here.