Do the FCA's concerns about professional representatives paint a fair picture of the sector?

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.

In his letter to Dame Meg Hillier MP, Chair of the Treasury Committee, on 8 June 2026, Financial Conduct Authority (FCA) chief executive Nikhil Rathi answered 19 questions that Dame Meg had posed in an email on 20 May 2026. One of the more detailed answers provided by Mr Rathi specifically addressed a question about the response to the regulator's motor finance consumer redress scheme from claims management companies (CMCs) and law firms, and their ongoing conduct.

The FCA has since confirmed that the Upper Tribunal will hear the legal challenges to the regulator’s scheme, which is now partially suspended, on either 14–18 December 2026 or 16–26 February 2027. While the FCA’s 2 July 2026 statement included guidance for both firms and consumers, Mr Rathi’s letter remains the fullest current account of the regulator’s thinking.

What does Mr Rathi say about CMCs and law firms?

Mr Rathi noted that the Information Commissioner’s Office (ICO) has received more than six million complaints about nuisance claims marketing this year alone, and pointed to other areas of concern including:

• misleading advertising;
• sign-up portals presented as ‘free checking tools’ to dupe consumers into signing up;
• consumers’ details being used without proper consent;
• cases where consumers’ signatures have been forged; and
• the scale of multiple representation—data from 13 large lenders shows that 1.3 million out of 4.7 million motor finance complaints involved more than one representative.

Mr Rathi also set out the action the regulator has taken in the part of the market it directly oversees—CMCs; the Solicitors Regulation Authority (SRA) oversees law firms—including:

• removing or asking firms to amend over 1,000 misleading adverts since January 2024;
• enabling more than 28,000 consumers to exit contracts at no cost;
• protecting over 500,000 consumers by ensuring three CMCs reduced ‘unreasonable fees’;
• formally requiring 10 CMCs to make changes to their processes, including four firms agreeing not to onboard new clients, four agreeing to terms regarding advertising, and two changing their exit fees;
• having 80 cases under review by its supervisors; and
• conducting two confirmed enforcement investigations, reported by the regulator as being into The Claims Protection Agency Limited and Consultation Claims Limited.

The FCA has also launched a market study into whether consumers are getting fair value in the claims management sector and, on the same day that it confirmed its final motor finance consumer redress scheme rules in Policy Statement PS26/3, announced a joint taskforce with the SRA, ICO and Advertising Standards Authority. The regulator later published more details on the scope of this taskforce on 6 May 2026.

Mr Rathi went further still in a subsequent answer, stating that ‘consideration should also be given to section 404 style redress powers’ covering CMCs, law firms, and ‘those in the funding chain’, so that they can ‘appropriately compensate consumers for any harm they have caused’.

Poor practice by some firms does not mean the whole sector is guilty

None of the conduct described in Mr Rathi’s letter and outlined here should be defended. Consumers who have been victims of the conduct described deserve prompt and firm regulatory action to put things right. Reputable firms have many reasons to welcome the FCA’s approach; poor practice by a minority erodes trust in professional representation as a whole.

It is equally important that the failings of some firms are not taken to define or demonise an entire industry. Mr Rathi acknowledged this, stating that ‘when operating honestly, professionally and ethically, CMCs and law firms can provide a valuable service and support access to justice’. He also noted that SRA-regulated law firms conduct most claims activity in the motor finance space. It is also worth remembering that the legal clarity on which the redress scheme was built was achieved by consumers who pursued their claims through the courts, ultimately to the Supreme Court in the Johnson, Wrench and Hopcraft test cases, with professional representation.

The same logic the FCA applies to lenders applies here. Years of lender misconduct brought the sector to this point. Yet, nobody is seriously suggesting that every lender behaved unlawfully or that every agreement entered into between 6 April 2007 and 1 November 2024 included issues that would justify a compensation payment. Likewise, the actions of a minority of firms guilty of poor practice across the motor finance claims space say little about the majority of firms that represent their clients with integrity.

What does the letter say about the timetable for compensation?

As confirmed in PS26/3, approximately 12.1 million agreements are due compensation under the scheme, which the regulator has said it will defend ‘robustly’. The FCA had already warned that eligible consumers would face a delay in receiving any redress they are due as a result of the legal challenges brought against the scheme. Mr Rathi’s letter, along with the regulator’s subsequent statement regarding the formal partial suspension of the scheme, confirms that payments are likely to begin in 2027, assuming the scheme is upheld.

If the redress scheme is struck down in whole or in part, the FCA would need to decide whether it should:

• consult on a revised scheme, which could lead to further delays into 2028 and beyond should that also be challenged; or
• move to a complaints-led approach, where lenders would need to, in most cases, assess and respond to complaints within the statutory eight-week timetable and make decisions based on the Upper Tribunal’s reasoning and the Supreme Court’s judgment in Johnson.

We should also note that Consumer Voice’s challenge, which argues that the scheme is too favourable to lenders, may lead to the projected average redress payment growing beyond the current estimate of £829 or to more consumers becoming eligible for redress.

The FCA’s advice to consumers remains unchanged:

• Those who have complained do not need to do anything now.
• Those who have not complained are encouraged to do so at the earliest opportunity and can do so at no cost without using professional representation.

Could some consumers receive compensation sooner?

In a notable passage in his letter, Mr Rathi outlined that some firms have said ‘they want to resolve these [redress] liabilities now and they are exploring whether they can make settlement offers on complaints that would have been dealt with through the scheme if it were not for the legal challenges. This could include cases where there is strong evidence that commission arrangements were not properly disclosed’.

Mr Rathi added that the FCA welcomes ‘ideas from firms and consumer organisations on how, despite the legal challenges, firms who want to should be able to start paying fair redress now. Where we can, we will help make that happen in a way that is fair, transparent and consistent for consumers and will keep the Committee updated’.

The Court of Appeal's ruling in Angel, handed down on 30 June 2026, may also increase the likelihood of consumers pursuing motor finance redress through litigation via omnibus claims.

What does the letter say about lenders?

Mr Rathi was unambiguous about the origin of the issue, stating: ‘The cause of this issue is lender misconduct. Firms failed to properly disclose commission arrangements, meaning consumers were not given the information they needed to make informed decisions and, in many cases, paid more than they should have’.

While over 95% of lenders subject to the scheme have submitted implementation plans to the regulator, Mr Rathi said that many are ‘not as ready as we would expect’. In its updates since the legal challenges were confirmed, the FCA has consistently instructed lenders to continue preparing to implement the scheme.

Lenders must begin communicating with consumers not owed redress under the scheme

The regulator has instructed lenders to continue reviewing complaints and to inform consumers with existing complaints if they are not owed compensation under the scheme, subject to some exceptions. The deadlines for lenders to make contact are:

• 18 November 2026 for consumers with agreements that began on or after 1 April 2014 and who complained before 30 June 2026; and
• 18 January 2027 for consumers with agreements that began before 1 April 2014 and who complained before 31 August 2026.

Lenders are expected to inform consumers who complain after these complaint cut-off dates (30 June and 31 August 2026) within five months if they are not owed compensation.

Note that, if you do not hear from your lender, this is not a guarantee you are eligible for or will receive any motor finance redress.

Register your car finance claim with Harcus Parker

The FCA’s motor finance redress scheme, should it proceed, will be free to use, and consumers will not require professional representation to receive any compensation they are owed. However, given the ongoing delays and uncertainty caused by the legal challenges to the scheme, there may be several benefits to instructing a solicitor, including verification of claims, lender responses and redress calculations, and the potential for uncovering issues associated with the broader motor finance transaction, such as mis-sold GAP insurance or irresponsible lending.

You can register your claim with Harcus Parker here.