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Banking giant Santander has criticised the Financial Conduct Authority’s (FCA) motor finance redress proposals while announcing a significant addition to its compensation provision.

Motor finance is a high-volume product sold in an environment where decisions are often made quickly. A customer wants to buy a car, the dealer organises the paperwork at the point of sale, and the lender relies on the dealership as an intermediary to generate business at scale. 

For many years, millions of motorists took out motor finance agreements in good faith, believing that the person arranging the deal was presenting competitive options and acting in their best interests. In reality, large parts of the market were built on conflicts of interest, weak disclosure, and an information gap so wide that many consumers could not have identified the problem, even if they had suspected one.

Since the Financial Conduct Authority (FCA) published its motor finance redress proposals, both lenders and industry bodies have said that the regulator’s estimates and assumptions are incorrect. Arguments from across these institutions have included claims that the proposed scheme will overcompensate consumers. Others have argued that the FCA is overstating lenders’ redress liabilities or underestimating what lenders will repay.

Undisclosed commissions have been central to the Financial Conduct Authority’s (FCA) investigations into motor finance commissions and associated consumer harm. The regulator’s initial investigation, and much of the subsequent coverage, focused on discretionary commission arrangements (DCAs), through which the broker could adjust the interest rate offered to you to earn a higher commission. 

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 Ombudsman Service (FOS) has confirmed that a new compensatory interest rate will apply to redress payments it directs financial businesses to make in cases it receives on or after 1 January 2026. 

For cases received before 1 January 2026, the FOS will generally continue its previous approach of applying 8% simple interest per year.

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.

Many consumers affected by car finance mis-selling will receive compensation offers directly from their lenders under the Financial Conduct Authority’s (FCA) proposed redress scheme. A prompt offer may appear attractive, particularly if you are looking for certainty and speed after hearing for years that you may be eligible for compensation.

Car dealers and other third parties acting as car finance brokers are central to the significant mis-selling identified by the Financial Conduct Authority (FCA) as having occurred between 6 April 2007 and 1 November 2024. However, that raises a natural question: why are the lenders primarily being held accountable for what the FCA estimates will be an £8.2 billion redress bill?