Motor finance redress scheme: AFC reacts to FCA’s announcement

He was joined by Emma Moriarty, Portfolio Manager at CG Asset Management, in a conversation with presenter Will Bain that explored the shockwaves rippling the grace and the splendour of the narration made by the Supreme Court in explaining and navigating these complex issues now seems to have been graffitied in spray paint on a wall in a rather hastily made statement.” through the auto finance and investment sectors.

The FCA’s Sunday afternoon statement followed Friday’s much-watched Supreme Court ruling, which concluded that car dealers had no fiduciary duty to disclose commissions, effectively clearing lenders of unlawful conduct in historic car loans. However, the FCA has opted to proceed with a redress scheme regardless, a move that surprised many and reignited industry concerns.

“There was some celebration on Friday,” Betteley said, “but the champagne went back in the cupboard on Sunday.” While the court ruled that no laws had been broken, the FCA have suggested otherwise in Sunday’s statement. Shoosmiths’ Wayne Gibbard captured the sentiment, saying: “Thegrace and the splendour of the narration made by the Supreme Court in explaining and navigating these complex issues now seems to have been graffitied in spray paint on a wall in a rather hastily made statement.”

Moriarty echoed the cautious sentiment. “There’s concern among lenders and the stock market that this could become PPI round two,” she said, referencing the multi-billion-pound scandal that plagued UK banks for years. While initial cost estimates before the Supreme Court ruling stood as high as £30 billion, the FCA now pegs compensation in the £9–18 billion range. Even at the lower end, this could have significant implications for lenders.

Betteley warned that a payout at the higher end could create serious market disruption: “If the figures were in the £40–50 billion range, you’d see firms exiting the market, tightening of credit, and those with lower credit ratings disproportionately affected. Some firms might not survive, and then there’d be no compensation for anyone.”

He also questioned the FCA’s approach: “They’ve already outlined a cost range, which makes me sceptical. If the consultation is genuine, why fix bookends so early?” More fundamentally, he raised concerns about the FCA applying regulatory oversight retroactively to pre-2014 practices, which were under the jurisdiction of the Office of Fair Trading at the time.

For now, uncertainty dominates. The FCA’s proposal lacks clarity on operational details and timeframe. While Moriarty acknowledged that some of the regulatory overhang may have been reduced, she stressed that the scheme’s final design will ultimately determine its impact on bank valuations and consumer credit availability.

As Will Bain concluded, consumer protection is essential, but if it results in higher costs or fewer options for borrowers, “consumers could end up the losers.”

With the industry bracing for both administrative burden and financial impact, all eyes now turn to how the FCA’s redress scheme will be shaped, and whether it strikes a balance between fairness and market stability.

Listen to the full episode of Wake Up to Money at: https://www.bbc.co.uk/sounds/play/m002gp2n