The Issue at Hand
For years, motor finance agreements have concealed problematic features - chief among them, commissions paid to motor dealers that were either inadequately disclosed or not disclosed at all. Discretionary commission arrangements (DCAs), which allowed dealers to influence the interest rate offered to customers, further compounded the issue.
The FCA’s review revealed widespread non-compliance with both legal requirements and regulatory expectations around disclosure. The recent Supreme Court ruling in the Johnson case underscored the gravity of this, confirming that even in the absence of DCAs, failure to disclose commission arrangements can render a credit agreement unfair under the Consumer Credit Act.
This is not a theoretical concern. Many consumers may have overpaid or made decisions based on incomplete or misleading information. The FCA’s proposed redress scheme seeks to correct this injustice.
What the Proposal Involves
Expected to be published by early October, with implementation likely by 2026, the FCA’s consultation aims to establish a scheme that is:
- Comprehensive – covering agreements dating back to 2007, enabling mass claims without the need for individual litigation.
- Fair and certain – balancing consumer rights with market stability, while avoiding unnecessary complexity.
- Transparent and timely – ensuring consumers understand their eligibility and receive compensation without undue delay.
Key decisions still to be made include whether the scheme should be opt-in or opt-out, how to assess unfairness in commission structures, what interest rate should apply, and whether a minimum threshold (de minimis) should be introduced.
The financial implications are significant. Estimates suggest the total cost could exceed £9 billion, potentially reaching £18 billion. Most consumers are expected to receive under £950 per agreement.
Why this Matters?
This proposal is significant on multiple fronts:
- Justice for consumers – offering redress to those who were misled or overcharged.
- A new standard for fairness – reinforcing that disclosure is not a formality, but a fundamental right.
- Restoring trust – helping rebuild confidence in financial services, which is essential for healthy markets.
- Regulatory clarity – providing consistency and avoiding the patchwork of outcomes that litigation often produces.
- Market resilience – while costly, the scheme is designed to preserve the long-term health of the motor finance sector. Firms that embrace transparency and fairness may well emerge stronger.
Navigating the Trade-Offs
Designing such a scheme is not without its challenges:
- Opt-in vs opt-out – Opt-out schemes ensure broader coverage but may increase costs and complexity. Opt-in schemes are leaner but risk excluding many eligible consumers.
- Eligibility thresholds – A de minimis threshold could streamline administration but may leave smaller, yet still meaningful, losses unaddressed.
- Cost vs fairness – The industry must balance the financial burden with the imperative to do right by consumers.
- Simplicity vs nuance – While clarity is essential, the scheme must still account for the intricacies of individual cases.
Looking Ahead
If well executed, this scheme could:
- Redefine best practice in motor finance, particularly around commission disclosure.
- Shift industry culture - placing fairness and transparency at the heart of customer relationships.
- Inspire similar reforms in other sectors where opaque practices have persisted.
How can Delta Capita help?
As firms prepare for the operational and regulatory demands of the redress scheme, Delta Capita brings proven expertise in building scalable redress calculatorsc, both manual and automated. With a strong track record of delivering complex data solutions for banks and regulators, as well as the support of our experienced SME advisory team, we help clients remain compliant, efficient, and customer-focused.
- Redress Calculator Expertise - We build both manual and bulk redress calculators tailored to your data and operational needs - whether you're handling thousands of cases or individual complaints.
- Regulatory Alignment - We understand the FCA’s expectations and timelines. Our solutions are designed to meet compliance standards and support smooth delivery of redress by Q1 2026.
- Flexible Technology Solutions - We offer: Excel/VBA calculators for manual cases, Python/SQL-based apps for bulk processing, Seamless integration with your complaint systems via ETL processes.
- End-to-End Support - Beyond calculators, we offer: Complaints handling centres, Customer outreach services, Data & technology consulting, All available at preferential rates for long-term value.
This is more than a redress initiative, it is a statement of intent.
Conclusion
The FCA’s proposed redress scheme is a milestone - not just for motor finance, but for the broader financial ecosystem. It signals a renewed commitment to fairness, transparency, and consumer respect. For those who were mis-sold finance, for firms seeking clarity, and for the integrity of the market as a whole, this is a pivotal moment.
Now is the time to engage, to prepare, and above all, to act.
For more information on how Delta Capita can help navigate the requirements, please contact Karan Kapoor, Global Head of Regulatory & Risk.
This article was co-authored by Anushka Patel, Associate Consultant.
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