The Financial Conduct Authority (FCA) has issued a stark warning to motor finance lenders, expressing deep concern over their readiness to implement a £9bn redress scheme that could pay UK drivers an average of £830 each. In letters sent to more than 100 firms last Friday, the regulator said that many firms' plans are not yet capable of supporting timely and accurate redress payments.
FCA Highlights Operational Failures
“We are very concerned about many firms’ operational readiness to handle complaints,” the FCA wrote in letters seen by City AM. “A significant number of plans are not yet capable of supporting timely and accurate redress payments.” The watchdog emphasised that preparation is necessary regardless of whether the scheme goes ahead, as legal challenges continue.
Motor finance lenders are set to attend a roundtable discussion with the FCA this week, according to sources familiar with the situation. The FCA has stated that eligible claimants will receive an average of £830, though amounts will vary. The letter cautions that the regulator will publish examples of good and poor practice in the coming weeks.
Industry Pushback and Legal Challenges
One industry insider pushed back, arguing that banks have past experience with mass redress schemes, but some manufacturers will face this for the first time and need to industrialise processes quickly. Major City lenders, including Lloyds, Santander and Barclays, face a combined bill of up to £9bn under the scheme, which centres on secret commission deals that left consumers uninformed.
The Supreme Court handed the industry a lukewarm victory last year but left the door open to a redress scheme, ruling that one claimant’s commission was excessive. Final proposals were published at the end of March and have since faced legal challenges from Mercedes-Benz, Crédit Agricole Auto Finance, and Volkswagen. Mercedes has set aside £400m to cover the fallout, while Volkswagen has made no provisions.
Consumer Campaigners Join the Fray
Customer campaign group Consumer Voice, represented by Courmacs Legal, is also mounting a challenge to the redress scheme. The growing backlash has caused progress to stall, with the FCA pledging to defend the scheme robustly at the Upper Tribunal. The FCA’s letter raised concerns over the industry’s dependence on underdeveloped systems and processes, as well as inadequate oversight of third-party and automated procedures.
Toby Hall, director of scheme supervision at the FCA, said: “While there is ongoing legal uncertainty, firms should continue preparing for all scenarios. Consumers and markets need confidence that, whatever the outcome, complaints will be handled consistently, efficiently and fairly.”
