Eight aspects of the FCA’s motor finance work that deserve credit

Public confidence in financial regulation and institutions is tested in times when systemic misconduct is uncovered across a major consumer market. Motor finance mis-selling is one such test.

The Financial Conduct Authority’s (FCA) response to car finance mis-selling has been criticised from multiple directions, including by:

• lenders concerned about the scope, methodology and cost of any industry-wide intervention;
• consumer groups concerned that not everyone will receive the compensation they are owed; and
• commentators who believe the regulator should have acted sooner.

These critiques are not frivolous and, in some cases, raise valid points. However, there is also a strong case that the FCA’s work in this area has been impressive in several respects, particularly given its technically demanding and legally complex nature – and the fact that the FCA has been criticised from all sides is a reflection of the reality that it was always going to be impossible to please everyone.

Set out below are eight aspects of the FCA’s response to motor finance mis-selling that merit acknowledgement, even if one might reasonably debate certain design aspects of the regulator’s proposed redress scheme.

1. The FCA has taken on a genuinely enormous task

Few regulatory interventions in recent years have matched the operational scale and complexity of the FCA’s work in the motor finance sector.

• The regulator first set out plans to analyse the sector in its 2017/18 Business Plan.
• It commenced work during the summer of 2017.
• The FCA published an update on its work in March 2018 and a final report in March 2019.
• These actions led to the FCA consulting on a ban on discretionary commission models in October 2019, confirming the ban in July 2020, and bringing it into effect on 28 January 2021.
• The regulator began further work on 11 January 2024.
• Following the Supreme Court judgment in the Johnson, Wrench and Hopcraft test cases, handed down on 1 August 2025, the regulator published its redress proposals on 7 October 2025.

The FCA has reviewed data from over 32 million motor finance agreements entered into between 6 April 2007 and 1 November 2024: a different order of magnitude than supervising a firm failure or a narrow product issue. Designing its industry-wide response is not solely about identifying misconduct by motor finance lenders and brokers. It requires the design and construction of workable rules, the translation of legal concepts into replicable calculations, and the creation of a framework that lenders can implement at scale without collapsing into inconsistency or paralysis. And the FCA has worked under much tighter budgetary restrictions than those who would criticise it.

2. The regulator has driven the agenda, rather than allowing the market to drift and fragment

The regulator's willingness to impose a structured redress scheme for motor finance compensation significantly reduces the risk of a disorderly and inefficient claims landscape. Without a redress scheme, consumers would have faced the prospect of engaging in lender-by-lender disputes, inconsistent and unequal complaint outcomes, and potentially years of piecemeal litigation and delays while the courts processed millions of complaints.

The FCA’s decisions to pause complaint handling in the first instance and to later consult on a formal redress scheme after the Supreme Court handed down its rulings in Johnson, Wrench and Hopcraft were intended to reduce the risk of such disorderly outcomes and helped to preserve access to complaint and redress routes for as many consumers as possible, rather than leaving outcomes to depend on timing and resources.

3. The FCA has been evidence-led

The regulator has consistently sought to ground its proposals and actions in extensive data analysis and in a transparent methodology, and has taken account of relevant court judgments as they have been handed down. This approach has been a necessity rather than a virtue. For example, if lenders pursue a judicial review or bring other litigation challenging the scheme, the FCA will be able to point to robust decision-making processes and evidential foundations, which would be closely examined as part of any challenge.

Without this foundation, the redress scheme would be more vulnerable to being set aside or curtailed, ultimately meaning consumers would wait even longer to receive their compensation.

Whatever disagreements or disputes remain about particular assumptions or thresholds, the FCA’s approach throughout has been grounded in a substantial analytical basis.

4. The time taken reflects the complexity of the market and legal questions, not FCA inertia

One criticism frequently levelled at the regulator is that its response has taken too long. While there is some merit in the viewpoint that warning signs existed years ago and consumers have been made to wait while various debates, investigations, and court cases played out, it must also be recognised that motor finance mis-selling is not a replay of a prior scandal. Instead, it sits at the intersection of:

• multi-party distribution chains involving lenders and intermediaries, including car dealers and other brokers;
• commission structures that varied across firms and over time; and
• legal precedent that has developed through the courts, including the application of unfair relationship principles to non-disclosure of commission and contractual ties.

It is also relevant that the FCA’s approach has had to interface with the Financial Ombudsman Service (FOS), complaint-handling rules, which the regulator itself has adjusted, and ongoing court proceedings, all with the ultimate goal of ensuring that consumers can receive consistent outcomes and not be left at the mercy of timing, their means of complaint, or the conduct of their lender. At the same time, the regulator has also been dealing with practical constraints, such as obtaining and analysing the data required from lenders and its own funding limitations.

In the context of the regulator’s investigation, speed and correctness have been competing objectives. In a market-wide intervention such as this, getting the architecture and design of a redress scheme wrong can be worse than taking the time to produce a scheme that is implementable and ensures as many consumers as possible receive the compensation they are due.

5. The regulator’s work has changed, and will change further, a massive industry

Even before redress payments begin, the FCA’s work has significantly changed lender and intermediary behaviour and the industry as a whole.

The ban on discretionary commission arrangements (DCAs) and the accompanying focus on disclosure standards significantly altered commercial incentives at the point of sale. That is not a minor technical or compliance adjustment but goes directly to the distribution economics of a market in which dealer-arranged finance has historically been dominant.

A further strength of the regulator’s approach is that it is not treating the redress scheme as an isolated, retrospective exercise. Instead, the FCA has sought to ensure that the direction of travel is towards a motor finance market in which conflicts of interest and disclosure are managed transparently, and in which consumers are in a much stronger position to compare finance options and understand exactly what they are paying for.

Some commentators may complain that it took years for the regulator to arrive at this point. However, the more material and relevant point is that the FCA's intervention is likely to have permanently altered the operating model of a vast sector.

6. The FCA is likely to deliver significant redress outcomes

A persistent feature of the motor finance mis-selling saga as it has unfolded is that, even using the most conservative modelling, the total compensation sums are substantial, adding up to billions of pounds, given the scale at which the regulator estimates mis-selling has occurred.

This is vital for two reasons.

Firstly, it is easy for commentary to become detached from the basic consumer outcome: returning money to people who paid more than they should have because brokers and lenders withheld material information or failed adequately to disclose potential conflicts of interest. A redress scheme that returns significant sums of money to millions of consumers is not a trivial undertaking or achievement.

Secondly, given the FCA's proposed level of compensatory interest and the impact of inflation, public dissatisfaction may focus more on what consumers did not receive than on what they did. In addition to the debate over compensatory interest, lenders have already made representations that the regulator’s proposed scheme is too generous to consumers and risks overcompensation. In contrast, the All-Party Parliamentary Group on Fair Banking has accused the FCA of siding with lenders, while advocacy group Consumer Voice has called on the regulator to ensure that consumers are put first in the scheme.

It is also clear that the conduct of lenders at the centre of this issue will, even after redress payments have been made, have proved highly profitable. That is precisely why it matters that the regulator has designed a scheme that will deliver a meaningful transfer of value away from lenders and back to consumers.

7. The regulator has rightly targeted harmful sales incentives

One of the most consistent themes in the FCA's work is the focus on misconduct in the motor finance distribution chain and the reality that consumers were often dealing with an intermediary at the point of sale whose incentives were not aligned with the consumer's best interests.

Inadequate disclosure of commission structures that rewarded higher borrowing costs deprived consumers of the ability to negotiate their deal, shop around, or understand what was happening and the structure of their agreement. The FCA has treated this as a core harm, rather than allowing the debate to be reframed as a technical dispute over regulatory guidance or contract wording.

This is a crucially important regulatory stance. A market in which consumers cannot identify conflicts of interest cannot be described as competitive or functioning, regardless of how readily available finance appears to be.

8. The FCA has pursued a practical route to delivering mass redress

There is no perfect mechanism for resolving financial misconduct at the scale the regulator estimates it has occurred in the motor finance market.

• Court claims can offer granular scrutiny but do not scale well.
• Complaints are scalable but can lead to inconsistencies and delays as market-wide legal positions are challenged and precedent is set.
• A redress scheme enables scale but often standardises outcomes and heavily relies on modelling.

The FCA has chosen a route that prioritises accessibility, and which is likely to maximise the number of consumers who receive redress. That choice inevitably involved trade-offs. Some consumers will reasonably believe they could obtain a higher redress award through litigation and will have the option to pursue this route rather than participating in the redress scheme. Other consumers will prioritise certainty and speed. The regulator's task was to design and establish a framework that functions at scale for the majority, even if it cannot be optimised for every individual.

It is not unreasonable to debate where the balance should lie. It is, however, fair and correct to acknowledge that the regulator has considered, confronted, and addressed the trade-off directly, rather than pretending it does not exist.

Where the FCA deserves constructive challenge: recognising the role of professional representatives

If there is one respect of the FCA’s public posture that is potentially incomplete and should be challenged, it is in how it describes the ecosystem of consumer redress.

While the regulator is correct to point out that consumers do not need to instruct a solicitor or use a claims management company to bring a car finance complaint, the reality is that professional representatives have played a crucial role in uncovering poor conduct and pushing complaints to the point where they could not be ignored; the FCA’s investigation, which commenced on 11 January 2024, was driven in part by the volume of complaints received by the FOS.

In bringing the market to this point, professional representatives have:

• aggregated patterns of consumer experience that were not visible from isolated complaints;
• invested in evidence gathering, sending disclosure requests, and drafting complaints at scale;
• taken cases through the FOS and, where appropriate, towards litigation, thereby helping to clarify the boundaries of what conduct is unacceptable; and
• created pressure on lenders by converting consumer dissatisfaction into structured, legally sound claims.

There are, of course, unscrupulous operators in any high-profile and potentially lucrative compensation environment, and consumers must be protected from misleading marketing, scams, and excessive fees. However, we would suggest that it is wrong to treat all professional representatives as problems to be managed, rather than recognising their role in holding lenders accountable.

A balanced regulatory approach would address two points at once:

1. Consumers should be able to claim directly, at no cost, if they wish, provided their claims fall within the scope of the redress scheme.
2. Consumers should also be able to obtain legitimate professional advice and representation from regulated providers if they prefer not to navigate a potentially complex process alone or if their circumstances may involve issues outside the scheme, such as disputes about records, add-on products like GAP insurance, or affordability and irresponsible lending concerns.

Without these distinctions being communicated clearly, there is a risk that consumers are discouraged from seeking advice when it would be prudent to do so, while doing little to deter the unscrupulous operators who will ignore guidance in any event.

In praise of the FCA

The FCA’s response to motor finance mis-selling has been imperfect, as any investigation and response of this scale and complexity will be. It has been criticised for delays, accused of overcomplicating the matter by both lenders and consumer groups, and of making choices that some believe reduce the value of redress.

However, it is wrong to deny the FCA’s central achievements in:

• undertaking a vast exercise encompassing analysis of data across a significant period;
• driving the market towards a structured outcome;
• building a substantial evidence base;
• targeting harmful incentives across the motor finance distribution chain;
• setting the direction of travel for long-term industry change; and
• most importantly, setting the UK on a path to returning significant sums to consumers.

The more productive debate is not whether or when the regulator should have acted, but how its final redress rules can best ensure that eligible consumers receive fair outcomes.

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