Motor Finance

As a motor finance lender, you will be preparing your business in response to the Supreme Court judgement issued on 1st August and subsequent statement by the Financial Conduct Authority.

The court judgement means consumer redress is due where there is an Unfair Relationship (s.140 CCA). These guiding principles are fact specific, meaning they apply to each customer case individually and they also need to be seen together.

The court provided the following guiding principles

the size of the commission relative to the charge for credit
the nature of the commission - because, for example, a discretionary commission may create incentives to charge a higher interest rate
the characteristics of the consumer
the extent and manner of the disclosure - including by the broker insofar as section 56 is engage.

The FCA’s statement slightly expands its thinking on how to interpret these. These are complex, simply because they are fact specific and require judgements.

This is an evolving topic with a consultation document about a redress approach expected from the FCA around the beginning of October. The FCA has said it is considering an industry-wide redress scheme that will look at the potential for consumer harm from unfair motor finance agreements back to 2007.

What we know so far:

The FCA will consult on a redress scheme in October. There is no decision yet whether that would be an opt in or opt out scheme.
The FCA will consult on extending the deadline for responding to consumer motor finance complaints (this had been set at December 2025).
Interest should be charged at a commercial rate – FCA has said this is likely to be in the region of 3% and it is intending on consulting on interest at 1% above Bank of England base rate which is consistent with FOS recent changes.
The FCA is minded for a redress programme to look back as far as 2007. The FOS took responsibility for adjudication of consumer credit complaints on 6 April 2007.

Four key questions for Motor Finance Lenders

What is your exposure to motor finance commission claims, including DCAs?

Firms should consider their potential exposures to inform provisioning or contingent liabilities. This now requires firms to consider a scenario where customers who were sold motor finance through a DCA, and some others that fall within FCA’s criteria for unfair relationship, may be included in a redress scheme. In extreme cases firms may need to consider options for restructuring and their wind-down planning arrangements. You can read more about estimating exposure under the current circumstances in our article click here.

How will you handle the review process?

An industry-wide redress scheme set up under FCA’s rule making powers has only been used twice before, British Steel Pensions and Arch Cru. These existing redress schemes give insights into the approaches the FCA can take to the process, timings for completing stages, approaches to customer communications and redress methodologies. Firms may have already completed planning based on an opt in complaints led approach and should also consider an opt out approach, where all potential customers are included. Some topics to consider are; identifying data and records; customer contact strategies; redress processes and procedures; as well as capacity planning to manage resourcing levels.

How will you identify in scope customers?

A start point for an industry-wide redress scheme is identifying the full scope of customers and efficient access to customer records or possibly other data sources to support compiling complete customer records. These may need to be collated from multiple sources and varying formats. The current redress schemes require firms to make ‘all reasonable efforts’ to find information. That can mean using public sources of information to trace customers current contact details or contacting other parties for information about the finance. Where records can be digitised this offers the potential of certain processes to be automated and efficiency gains in handling increased volumes.

How will you ensure you meet regulatory expectations?

A programme of this size requires strong governance and oversight to ensure standards are met. You may require specific external support to provide validation over the design and execution of any redress programmes and to provide confidence to internal and external stakeholders about regulatory requirements or programme risks and progress.

How do you account for this?

Probable claims presenting contractual or constructive obligations to entities need to be recognised on balance sheet. Judgment needs applying for possible claims, including whether they need disclosing in the notes to the financial statements even if they are not recognised.

How we can support you

If you have not yet assessed your exposure and made provision for remediation, we can help you to analyse customer populations, forecast the likely volume of claims, and calculate how exposure to claims varies under the potential regulatory and legal outcomes.

If you are looking to undertake a customer data exercise, we can help. From scoping and identification through to extracting data from multiple sources, we can support you with an approach that is comprehensive, defensible and meets regulatory requirements.

If your exposure to remediation is high, you may be considering restructuring. Our team can advise you on your options to protect longer-term viability. We have a proven record in finding solutions that avoid formal insolvency and return business to good financial health.

If you are considering buying or selling a business, we can help. Our sector experts are experienced in special situations where either party may be in a difficult scenario. We can help with valuations, due-diligence, deal structures, and funding.

Our accounting and reporting specialists have extensive experience of helping entities determine whether claims need recognising on balance sheet and/or disclosing in the notes to the financial statements under both IFRS Accounting Standards and UK GAAP.

Where you need additional assurance that you are meeting FCA expectations, we can help. This includes compliance with DISP rules and that going forward you are delivering good consumer outcomes aligned to The Consumer Duty.

As you start to experience increased volumes of customer complaints and remediation this may exceed the capacity of your existing teams. We can quickly deploy experienced and skilled interim resources, scaling-up and down to meet demand.

If you are assessing your wind down planning arrangements, we can help to ensure that they are adequate and compliant with regulations. Where you are facing winding down, we can help you do this in an orderly manner, including managing liaison with regulators.

You may already be preparing to handle a customer remediation exercise. Our team have supported on some of the largest projects in financial services. We understand the regulatory expectations, the operational challenges, and can provide additional resources where required.