MPs say FCA has 'nakedly taken the side of lenders' in car finance 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.

What is the latest news on the car finance mis-selling scandal?

An All-Party Parliamentary Group (APPG) report published on 3 November has strongly criticised the Financial Conduct Authority (FCA), accusing the regulator of "nakedly taking the side of lenders" in its proposed redress scheme for consumers who were overcharged for car finance due to hidden or excessive commissions.

How have lenders reacted to the FCA's proposals?

Lenders have largely complained about the potential cost, which the FCA estimates could be £8.2 - £9.7 billion, and have even raised concerns about fairness and the evidence required. Some, including Santander, have warned of broader economic harm, which the APPG report calls "doom-mongering," and have even called on the government to intervene on their behalf.

Why is the APPG so critical of the FCA?

The APPG has accused the FCA of protecting lenders' profits at the expense of consumers. It points out that the FCA's own 2019 report found these commission models were costing consumers £300 million a year. The new proposals seem to ignore this, offering a solution far less than the £44 billion lenders might have faced had August’s Supreme Court judgments in Johnson, Wrench and Hopcraft set a different precedent.

What is the main concern with the redress scheme's calculations?

MPs warn that the proposed calculations are complex and would allow lenders to act as "judge and jury" on their own claims, having been responsible for causing the harm in the first place. This creates a risk that lenders could exploit the situation to reduce the compensation payments they make.

Does Harcus Parker share these concerns?

Yes. We have long worried that an FCA redress scheme would allow lenders to "mark their own homework," and these proposals risk being a "halfway house" that fails to hold lenders fully accountable. Additionally, the FCA is proposing a low 2.09% simplified interest rate on compensation, rather than the standard 8% compound rate, which will significantly reduce consumer payouts and rob motorists of a collective £4 billion.

Could I get more money by taking my case to court?

Possibly. The FCA estimates an average payout of £700 per mis-sold car finance agreement under its redress scheme. However, the APPG report noted that consumers who pursue their claims through the courts could receive an average of £1,500. This highlights how inadequate the FCA's proposal may be.

The FCA warns against using law firms. Why should I seek legal help?

The FCA's own track record on this issue is poor.

• Car finance mis-selling happened for years "under the regulator's nose."
• The FCA first reported potential consumer harm from commission models in 2019 but only banned discretionary commission arrangements in January 2021.
• Significant mis-selling continued even after the FCA began its scrutiny.

Given that lenders have misled consumers for years, it is understandable that those same consumers are wary of trusting either the lenders or the regulator to ensure they are paid fairly.

How can Harcus Parker help me?

Yes! At Harcus Parker, we don't just handle motor finance mis-selling claims. We’ll go further by also investigating if you were also mis-sold add-ons like GAP insurance, or if your car loan was unaffordable from the start. We are here to help you get the compensation you are rightfully owed.

Check your eligibility for car finance compensation and register your claim now.