What the FCA’s motor finance redress scheme will not compensate you for

The Financial Conduct Authority’s (FCA) proposed redress scheme is intended to deliver compensation at scale to consumers affected by commission-related mis-selling. However, while that scale may help many people access compensation more easily, it also means that the scheme must draw boundaries and only cover defined, ‘in scope’ elements.

As such, it will not require lenders to assess every possible loss or every potential complaint arising from a motor finance agreement and the broader sales process around it. This matters in practice because many consumers focused on commission-related redress may also have separate grounds for complaint that fall outside the scheme, even where those issues caused real financial harm.

With that context in mind, we will now explore several key categories of potential loss and issues the redress scheme may not compensate you for. These are areas that a solicitor can review with you and, where appropriate, pursue through routes outside the scheme.

Unaffordable or irresponsible lending

The regulator’s redress scheme may help you receive compensation for undisclosed or high commissions; however, there may also be a question around whether:

• your lender should have offered you finance at all;
• your agreement was affordable given your circumstances at the time; and
• your lender carried out adequate affordability and risk checks.

These are distinct questions, typically assessed using different evidence from that used to determine your eligibility for commission-related motor finance redress, and they may lead to additional redress depending on the facts.

Mis-sold add-ons

When you entered into a car finance agreement at the dealership, you may have also been sold add-on products as part of the transaction, including:

• GAP insurance;
• extended warranties;
• service and MOT plans; and
• cosmetic, alloy and tyre cover.

There have been concerns and allegations that commission-driven incentives associated with various add-ons, including GAP insurance, may have increased prices or influenced how car dealers sold these products, separate from commission-related motor finance redress.

Negative equity and refinancing cycles

You may have experienced harm from negative equity being rolled into subsequent motor finance agreements, or from longer terms used to keep your monthly payments manageable. Even where commission-related redress is payable, the scheme is not designed to unwind a chain of credit decisions or reconstruct the overall cost impact you might have experienced across multiple agreements.

Consequential losses

You may have experienced knock-on, consequential harm beyond the difference between what you paid and what you might have paid if commission had been adequately disclosed and priced, such as:

• arrears charges or default fees;
• debt collection charges or fees;
• having to refinance at higher rates or being unable to access credit at lower rates; and
• a loss of savings buffers and cascading borrowing.

The regulator’s proposed redress scheme may rely heavily on standardised calculations to ensure consistency and that as many people as possible receive car finance compensation. However, this means that consequential losses are unlikely to be addressed through the scheme's redress calculation methodology and may require a separate complaint to your lender.

If your motor finance costs contributed to a broader debt spiral or other financial difficulties, a scheme payment is unlikely to adequately capture or address the broader impact.

Claims excluded because they fall outside the scheme’s scope

The FCA’s redress scheme proposals define which agreements and scenarios fall within scope, and which do not.

However, even if your car finance agreement is not eligible for compensation within the regulator’s redress scheme, you may still have grounds to bring a complaint, both in relation to your motor finance agreement as well as for matters like irresponsible lending and the mis-selling of add-ons.

You could fall outside the scope of the redress scheme even if you feel you were treated unfairly, and may wish to consider complaining directly to your lender, escalating to the Financial Ombudsman Service (FOS) if you are dissatisfied with your lender’s response, or instructing a solicitor so you can receive expert legal advice.

Evidence gaps and missing records

The proposed structure of the regulator's redress scheme means there is a risk you may miss out on compensation if you rely solely on a lender contacting you, particularly if your contact details have changed or your lender holds incomplete records.

One potential drawback of the proposed scheme is its 'lender-led' nature, which places responsibility on lenders to identify and contact consumers they believe may have been mis-sold. However, if you settled your car finance agreement six or more years ago, records may no longer be held or may be incomplete. Where lenders do still retain your records, they may not be able to locate you if, for example, you have moved house since your agreement concluded. In some cases, lenders may also be relying on incomplete broker records or making assumptions about what they or your broker told you and the impact of mis-selling.

These concerns have been raised frequently in commentary around the FCA’s proposals and are at least part of the reason why the regulator has encouraged consumers to complain before it publishes its final rules and the scheme begins.

Distress, inconvenience, and time spent pursuing the issue

Sometimes, compensation awards may include recognition of stress, time spent on pursuing the complaint, and other factors. FOS decisions, for example, can include an additional award to recognise the ‘intangible’ elements of a complaint, such as distress and inconvenience, depending on the circumstances. However, the FCA’s proposed motor finance redress scheme is designed to focus on addressing quantifiable financial loss using a prescribed methodology, even if such calculations may rely on estimates and assumptions in a significant number of cases.

If you believe you have been affected by distress and inconvenience or other non-financial impacts not covered by the scheme, you may wish to consider instructing a solicitor to manage your car finance claim to investigate what grounds you may have for these additional claims. Realistically, however, it is unlikely that you will be compensated, however real the distress, inconvenience and loss of time.

What to do if you think you have additional losses outside the scheme

The FCA has been clear in its guidance that consumers can complain directly to their lender before it publishes its final redress rules and launches the scheme, and that existing complaints are likely to be dealt with more quickly.

If you choose to pursue a complaint yourself, you may receive a settlement offer from your lender. Whilst this may enable you to receive compensation at no cost, before accepting an offer, you should consider:

• whether the offer is limited to commission-related redress;
• whether the lender is proposing a ‘full and final’ settlement; and
• whether you have concerns about irresponsible lending, mis-sold add-ons, or consequential losses connected to your motor finance agreement.

If you are unsure about the practical and legal impact of accepting an offer from your lender, you should seek legal advice.

Register your car finance claim with Harcus Parker

In addition to pursuing a motor finance mis-selling complaint in relation to commission, you may also wish to understand whether you were affected by other potential issues connected to your agreement that sit outside the FCA’s proposed redress scheme.

If you instruct us to manage your car finance claim, we can review your circumstances, explain what the FCA's scheme covers, and advise on routes to pursue additional redress where issues fall outside the scheme's scope.

Register your car finance claim with Harcus Parker here.