The motor finance industry is facing a challenging 2025

In the closing minutes of the Supreme Court Appeal hearing on 3rd April, we learned it is ‘realistic’ to expect a judgement in July this year. This is an important case with significant ramifications requiring careful deliberation by Supreme Court judges after three days of arguments.
 

Looking forward, this now sets a potential timetable for the next few months.

The FCA’s statement on 11th March committed to consult on a redress scheme within six weeks of the Supreme Court’s decision. Any redress scheme will be industrywide which means it would include all consumers sold DCAs and that wider implications for non DCA motor finance would be assessed pending the outcome of the Supreme Court judgement.

“A redress scheme would be simpler for consumers than bringing a complaint. We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive.”

In effect, this approach would mean all lenders that have sold motor finance, via a broker, to a customer with a DCA scheme would need to identify all customers and pay a redress amount. The population requiring redress under an industrywide scheme would be 100% of those consumers.

A point in the statement that would support an industrywide redress scheme refers to ‘widespread failings by firms’ to disclose commission in accordance with the rules in place at the time. The FCA is likely referring to its rules for commission disclosure in CONC (and preceding rules by OFT). The FCA has published a detailed note of its rules in a letter to Lord Forsyth, Chair of the Financial Services Regulation Committee, dated 17 January 2025.

The Supreme Court Appeal hearing concluded on 3rd April. Submissions to the court were interesting and relayed the complexity of the issues about what type of duties arise in the relationships between consumers and brokers. Many previous legal cases were discussed to understand the precedents that can inform this appeal.

The FCA submission advocated that there are regulatory requirements already in place to manage conflicts of interests and ensure disclosure of information to customers. This is an argument for the status quo in the way the credit broking market works. The FCA did requested the court not to be prescriptive on remedies, presumably to allow FCA to consult on remedies and redress later.
 

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The Appellants and Respondents arguments focused on the different interpretations of the law about fiduciary duties, disinterested duties, bribery and fraud, and associated remedies. There were interesting exchanges focused on discussion about the role of a motor dealer credit broker – is it merely to give information; act as an intermediary between both parties; or is it more of a trusted fiduciary relationship to only act for the customer and in their interests?

The ramifications of a finding that a car dealer/credit broker owes a fiduciary duty to the customer are widely feared. It potentially opens up a greater range of broker/consumer arrangements to scrutiny over how commission is disclosed and agreed.
 

Likely timetable

If the Supreme Court does indeed publish its decision by the end of July, we can expect an FCA communication by mid-September. The FCA is required to consult to make the rules necessary for a statutory redress scheme, and demonstrate it meets the necessary tests for such a scheme. Consultation is a crucial stage in ensuring questions are raised that can affect the operation and extent of a redress scheme.

Consultation generally runs for three months, once closed the FCA would consider responses before issuing final rules which are approved by the FCA Board. Potentially it may need to reconsult on some points and repeat the consultation cycle. Therefore, potentially, final redress scheme rules could be published in early 2026.
 

Potential impacts and steps to take:

Population identification

Practically this presents challenges in ensuring the population of customers is fully identified. This means going extra steps to identify missing records and information to determine if a customer had a DCA or not.

Redress calculations

The customers records should also be important in being able to assess redress as the detail may be critical in accurately calculating a redress amount. For example, the interest rates available and charges, repayment histories, defaults, or early terminations.

The methodology for redress calculations is most likely to be a central feature of any FCA consultation. The Supreme Court judgement could impact how redress is calculated, if it is determined that commission should be fully disclosed and agreed to by the customer in addition to discretion to increase interest rates. Modelling potential scenarios helps to assess potential exposures.

Financial Resilience

The Supreme Court judgement will be crucial in determining the extent of redress liabilities lenders may face. Modelling scenarios in advance will help firms plan and prepare.

CMCs

The Claims Management Companies have been effectively carved out of the redress process by the FCA’s announcement. No doubt they will be considering how they approach any FCA consultation and the challenges that could be raised.

 

How we can help

If you need support in preparing for the impact of DCAs we can help. We have expertise is quantifying exposure, regulatory conduct, complaints management, resource augmentation and restructuring. To discuss the issues you are facing please contact Richard Barnwell.