The FCA has provided a significant update on its ongoing review into historic motor finance commission arrangements. As the industry awaits the outcome of the Supreme Court judgment, the FCA is already exploring how a potential consumer redress scheme could be structured.
This article provides an overview of the key points and what motor dealerships, brokers, and finance intermediaries should consider.
The Background: Commission and Complaints
Until January 2021, discretionary commission arrangements (DCAs) allowed brokers (primarily car dealers) to adjust interest rates on motor finance deals, earning higher commission the more customers paid in interest. These arrangements were banned by the FCA in 2021.
However, complaints have since surged – mostly focused on firms failing to disclose commission details prior to the ban. Many firms have rejected these complaints, believing their conduct was not unfair or did not result in financial loss to consumers.
The Court of Appeal and Supreme Court Case
In a key development, the Court of Appeal ruled that in certain cases, it was unlawful for a dealer to receive any form of commission from a lender without informing the customer and obtaining informed consent.
The matter is now before the Supreme Court, and the FCA has confirmed it will act quickly following the judgment to determine next steps – including whether a formal redress scheme is required.
What Is a Redress Scheme?
If implemented, a redress scheme would:
- Set rules for how motor finance firms assess claims.
- Provide calculation methods for redress.
- Introduce controls and monitoring to ensure consistency and fairness.
Importantly, the FCA intends for any scheme to be simple and accessible, without requiring legal help or claims management companies (CMCs) – which often charge up to 30% of a customer’s award.
Key Design Considerations
The FCA is engaging with stakeholders including consumer groups, lenders, and trade bodies to explore:
- Opt-in vs. Opt-out Models: Would consumers need to proactively join the scheme, or be included automatically?
- Redress Calculations: The FCA is cautious about speculative figures circulated by some CMCs. A data-driven, fair approach is expected.
- Consumer Impact vs. Market Stability: Redress must be balanced with preserving competition. If too many firms fail, consumers may ultimately lose out again.
The FCA is also publishing its principles for designing a redress scheme, outlining the trade-offs it must consider – such as speed vs. comprehensiveness.
What Should Firms Do Now?
- Stay Informed – Understand the potential impact of the upcoming Supreme Court judgment.
- Prepare Internally – Start reviewing your historic commission arrangements and disclosure practices.
- Engage with Experts – If you believe your firm could be affected, consult with a compliance partner to understand risk exposure.
At Peak Consultants, we are actively supporting motor retailers and credit brokers in preparing for the potential introduction of a redress scheme and ensuring they have the right compliance systems, controls, and documentation in place to protect their business going forward. Our compliance experts can help you:
- Utilise our Demands and Needs tools to ensure customers are matched with appropriate products and the right type of consent is always captured
- Access our CPD e-Learning platform, keeping your teams informed and up-to-date with the latest FCA expectations and industry regulations
Next Steps from the FCA
- Within 6 weeks of the Supreme Court judgment, the FCA will announce whether it proposes a redress scheme.
- If so, a consultation will be launched, detailing:
- Scheme mechanics
- Draft rules and timelines
- Cost-benefit analysis
- Final rules would follow in 2026, subject to consultation.
Our View
The FCA is preparing for rapid intervention. Firms should not wait for the outcome to begin preparing. A proactive approach now could save significant time, cost, and reputational damage in the future.
If you’re unsure how this affects your business, speak to Peak Consultants today. Our tailored support will help you anticipate regulatory developments and build your compliance resilience.
