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The City regulator is poised to consult on an industry-wide redress scheme if motor finance customers are found to have lost out from widespread failings by firms.
The Financial Conduct Authority (FCA) issued a statement saying that it wants “to provide as much certainty as possible to firms, consumers and stakeholders”.
The regulator is currently reviewing the past use of motor finance discretionary commission arrangements (DCAs).
It is seeking to understand if firms failed to comply with requirements relating to DCAs and if consumers lost out as a result.
If they have, the regulator said it wants to make sure consumers are appropriately compensated in an orderly, consistent and efficient way.
Since the regulator launched its review, a ruling by the Court of Appeal has raised the possibility of widespread liability among motor finance firms, wherever commissions were not properly disclosed to customers.
The Supreme Court is due to hear an appeal against the Court of Appeal’s judgment next month.
The FCA said on Tuesday: “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. We previously said it is more likely than when we started our review that we will introduce an alternative way of dealing with complaints.
“Under a redress scheme, firms would be responsible for determining whether customers have lost out due to the firm’s failings. If they have, firms would need to offer appropriate compensation. We would set rules firms must follow and put checks in place to make sure they do.”
A redress scheme would be simpler for consumers than bringing a complaint, the regulator said.
It added: “We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive. It would also be more orderly and efficient for firms than a complaint-led approach, contributing to a well-functioning market in the future.”
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The regulator said it would confirm within six weeks of the Supreme Court’s decision if it is proposing a redress scheme and if so how it will take the scheme forward.
It added: “Throughout our work, we will continue to consider how to make sure affected consumers are appropriately compensated and the motor finance market continues to work well, with effective competition, for the millions of consumers who rely on it every year.”
The Financial Ombudsman Service recently said that hire purchase related to motor vehicles was the area that generated the most complaints between October and December 2024. It said case numbers had risen due to complaints about motor finance commission arrangements.
Jenny Ross, editor of Which? Money, said: “While much still rests on the Supreme Court decision, a redress scheme would remove the need for consumers to make a direct complaint to providers.
“This could greatly simplify the process and reduce the need for claims management firms to be involved, increasing the chances of motorists getting 100% of any payout that may be awarded.”