FCA signals potential ‘industry-wide redress scheme’ for motor finance commissions

The FCA has today (11 March 2025) indicated that it will potentially consult on an “industry-wide redress scheme” for motor finance customers that have lost out financially from “widespread failings by firms” on the issue of secret commissions. 

A consultation on this redress scheme, which has been estimated to potentially cost lenders up to £44bn and been compared to the payment protection insurance scandal, would be dependent on a Supreme Court confirmation of a Court of Appeal ruling that motor finance firms held liability for inproper disclosure of commission values. 

The Supreme Court will hear the appeal between 1 and 3 April 2025, with the FCA having been granted permission to intervene in the case.

In a statement posted today, the regulator said: ”We want to provide as much certainty as possible to firms, consumers and stakeholders. So, we are confirming that if, taking into account the Supreme Court’s decision, we conclude motor finance customers have lost out from widespread failings by firms, then it’s likely we will consult on an industry-wide redress scheme.

“Under a redress scheme, firms would be responsible for determining whether customers have lost out due to the firm’s failing. If they have, firms would need to offer appropriate compensation.” 

With such high potential costs for motor finance lenders, UK chancellor Rachel Reeves attempted to step into the case in January to curb what she called a “windfall” compensation for borrowers. However, the government’s intervention was knocked back by Supreme Court judges in February.

Insurance impact

This potential redress scheme will not have a direct impact on the insurance sector, but the FCA’s position on the necessity for a redress scheme where failings to disclose commissions are found is significant. 

The FCA has identified the issue of insurance commission payments made to brokers or other distributors, without the knowledge of the end customer, as an issue for enforcement in areas such multioccupancy buildings insurance and guaranteed assett protection (Gap) insurance.

In 2022, the regulator said it was considering limiting the amount of commission that could be paid to brokers in the case of multioccupancy buildings insurance because these were potentially a “significant cause of harm”. 

More recently, in February and March 2024, it also paused all sales of Gap insurance while it conducted a review. 

Speaking to Insurance Times previously, Nadege Genetay, partner at regulatory consultancy Sicsic Advisory, noted: ”The big question is what the read across to other sectors there will be from the [motor finance] judgement. 

”Our view is that there are a lot of headwinds around commissions. If you look at a number of publications recently, there’s been a lot of challenge from the FCA, specifically around the justification of commission.”