Financial Conduct Authority consultation on the motor finance consumer redress scheme

About us

Consumer Scotland is the statutory body for consumers in Scotland. Established by the Consumer Scotland Act 2020, we are accountable to the Scottish Parliament. The Act defines consumers as individuals and small businesses that purchase, use or receive in Scotland goods or services supplied by a business, profession, not for profit enterprise, or public body.

Our purpose is to improve outcomes for current and future consumers, and our strategic objectives are:

• to enhance understanding and awareness of consumer issues by strengthening the evidence base
• to serve the needs and aspirations of current and future consumers by inspiring and influencing the public, private and third sectors
• to enable the active participation of consumers in a fairer economy by improving access to information and support

Consumer Scotland uses data, research and analysis to inform our work on the key issues facing consumers in Scotland. In conjunction with that evidence base we seek a consumer perspective through the application of the consumer principles of access, choice, safety, information, fairness, representation, sustainability and redress'

Consumer principles

The Consumer Principles are a set of principles developed by consumer organisations in the UK and overseas.

Consumer Scotland uses the Consumer Principles as a framework through which to analyse the evidence on markets and related issues from a consumer perspective.

The Consumer Principles are:

• Access: Can people get the goods or services they need or want?
• Choice: Is there any?
• Safety: Are the goods or services dangerous to health or welfare?
• Information: Is it available, accurate and useful?
• Fairness: Are some or all consumers unfairly discriminated against?
• Representation: Do consumers have a say in how goods or services are provided?
• Redress: If things go wrong, is there a system for making things right?
• Sustainability: Are consumers enabled to make sustainable choices?

We have identified redress and information as being particularly relevant to the consultation proposal that we are responding to.

Our response

Overview

Consumer Scotland welcomes the opportunity to respond to the FCA consultation on the Motor Finance Consumer Redress Scheme. We welcome the action being taken by the FCA. This follows the FCA’s review, covering data from 32 million agreements, which found widespread failings regarding how motor finance firms disclosed commission payments and commercial ties between lenders and brokers. The inadequate disclosure of commission meant consumers were less likely to make informed decisions, negotiate or shop around for a better deal and the FCA’s analysis indicates that many people may have overpaid on their motor finance as a result.

We note that the FCA estimate that 14.2 million agreements (44% of all agreements made since 2007) will be considered unfair. This demonstrates the significant scale of the issue and the substantial level of consumer detriment that has occurred as a result of unfair agreements. We welcome the focus on ensuring that consumers who have experienced detriment will receive fair compensation in an orderly, consistent, quick, and efficient way, while ensuring a well-functioning and competitive motor finance market.

Our comments on the consultation will focus on the benefits to consumers of the implementation of a motor redress scheme and the importance of providing consumers with clear and consistent information about the scheme and their options for seeking redress.

Design and implementation of the scheme

We note from the consultation paper that over 2 million people use motor finance each year, with £39 billion borrowed in 2024. The Financial Lives Survey shows that 11% of adults held a motor finance product in 2024.[1] These figures illustrate the scale of the market and the importance of ensuring that it functions well for consumers, giving them the confidence to engage. For many consumers, access to such finance facilitates access to transport, enabling them to participate in employment and training, leisure opportunities and supporting growth.

In line with the consumer principle of redress, we agree with the FCA that an industry-wide redress scheme is the best way to provide timely and fair redress to consumers while protecting the integrity of this important market and providing certainty as quickly as possible for both consumers and providers.

We welcome the key principles underpinning the scheme, including the aim for the scheme to: “Be simpler for consumers than bringing an individual complaint meaning more consumers, particularly vulnerable ones, receive compensation they are owed.” We support the focus on ensuring that the scheme is simple for consumers to access and focuses on maximising participation.

We agree with the proposed approach of lenders rather than brokers delivering the scheme. This approach will ensure more timely and comprehensive redress, given that there are many more brokers than lenders. In line with the consumer principle of redress, it will be important for lenders to do all that is reasonably possible to maximise uptake of the scheme by consumers. It will be important to ensure that consumers in vulnerable circumstances are given the support and targeted information required to participate in the scheme.

We welcome the FCA’s intention to supervise the scheme closely to make sure that firms follow the rules and the willingness to intervene if they don’t, using enforcement powers if necessary.

We note the intention to monitor data from firms and publish updates every six months. We support this approach. Given the intention of implementing and concluding the scheme swiftly, it will be important to support this with robust data collection measures and transparent information regarding management of cases. This will provide a clear picture of how swiftly firms are making contact with consumers and considering claims.

We welcome the consideration of the needs of consumers in vulnerable circumstances in the consultation paper. We note the recognition in the consultation paper that for such consumers, for example those with a disability, limited financial capability, or other characteristics, it may be harder for them to engage with the scheme and get the right outcome. As the paper notes, this is important given the knowledge and power imbalance that exists between lenders and many consumers. We welcome the FCA’s consideration of measures to reduce the risk of this happening, in particular: 

• The clear expectation placed on firms to operate the scheme in a way that meets the needs of consumers with characteristics of vulnerability. This is consistent with the FCA guidance on vulnerability and the requirements in the Consumer Duty on communications and consumer support.
• The proposal requiring lenders to consider any information they hold about a consumer’s circumstances and potential vulnerabilities when assessing whether disclosure of relevant arrangements was adequate. This allows for consideration of the consumer’s individual circumstances which we consider is appropriate.

Provision of information and guidance to consumers

We welcome the intention of the scheme to provide timely and fair compensation to consumers, with clear communication about how their claim is being dealt with. In line with the consumer principle of information, information should be provided to consumers in an accessible and consistent way that supports engagement with the scheme and takes the different circumstances of consumers into account.

We recommend that the FCA: 

• provides lenders with guidance for ongoing communications with consumers to ensure clarity and consistency of messaging
• monitors a sample of these communications to ensure they comply with any guidance, and takes follow up action as appropriate where guidance has not been followed

We note that the FCA have set out in the proposed scheme rules the types of communications that lenders will be required to send to consumers and the key content those letters should contain. Requiring standard content to be included in letters will help ensure consumers receive a consistent experience during the scheme. In line with the consumer principle of information, firms must clearly communicate the process and timescales to consumers, making clear any need for action or decision making from them. This will help to ensure that consumers have clarity about what they need to do and when.

We welcome the FCA’s intention to deliver a communications campaign which will inform consumers about the scheme, flagging that they need to proactively contact their lenders if they have not heard from them within 6 months of the scheme start. This communications campaign should be clear and consistent with the messaging from lenders in order to maximise consumer engagement and confidence. Given the tight timeframe for consumers to opt in if they have not heard from firms, it will be vital to ensure that consumers have access to the necessary information and have clarity about what they need to do and when they must do it.

We recommend that the communications campaign should be multichannel and should take into account the range of circumstances of consumers, including those in vulnerable circumstances, to maximise reach and impact.

Ensuing consumer can access redress solutions that work for them

Consumer engagement with the scheme should be as straightforward as possible.  We welcome the policy intent to put the onus on firms to do what they can to track down consumers rather than the onus being primarily on the consumer.

We recommend that communications from lenders and the FCA communications campaign should communicate clearly the different options available to consumers so that they can make an informed decision about the approach that is right for them. We acknowledge that the scheme prioritises taking swift action to ensure that redress is available to consumers without disproportionate delay. However, we are aware this may result in some consumers receiving less compensation than they would receive if they were to take the case to court. The consultation paper acknowledges that consumers can choose not to take part and instead take their case to court, where they may get more or less compensation than under the scheme, based on the facts of their case. We acknowledge that the outcome of a court claim is uncertain and that accounting for legal fees, many consumers could end up with less, as well as expending considerable time in pursuing a case.

However, while we recognise that pursuing the matter through the courts may expose consumers to additional costs, time and risks, it is an important principle of fairness that consumers should receive the compensation they are entitled to. We are therefore concerned if the compensation scheme results in significant numbers of consumers receiving less compensation than they should reasonably expect, while requiring consumers to make a difficult trade-off between accepting this lower figure or risk pursuing a potentially complex and lengthy process to secure the appropriate amount.

Given the significant and widespread consumer detriment that the FCA’s review has already exposed, and the need to rebuild consumer confidence in this market, there is a strong case for the compensation scheme providing compensation at the same level as consumers might expect to achieve through court. We recommend that the FCA reviews its proposed approach to this issue and puts forward an alternative proposal that would deliver higher levels of consumer compensation through the scheme.

Regardless of the FCA’s final decisions on this matter, it is essential that consumers are aware of the risks and benefits of each possible approach available to them, including the implications for the level of compensation received.

Communications from lenders and the FCA must make clear to consumers that the FCA scheme is free to access and that there is no need for consumers to use a claims management company. It is important that, when judging the approach the take, consumers are aware that using a claims management company or law firm, which the consultation could result in the firm receiving up to 30% of any compensation paid. We welcome the action that the FCA is taking, in co-operation with the Advertising Standards Authority, the Information Commissioner’s Office and the Solicitors Regulation Authority, to combat the provision of misleading information by firms in this space.[2]