Now that the FCA has reported on their Consultation, here's a summary of their consultation on the Motor FInance Consumer Redress Scheme. It focusses on the impact on retail motor dealers and whether they may be financially liable for redress.
Background
In the 17-year period between April 2007 and November 2025, the FCA found that around 44% of all motor finance agreements would likely be considered unfair under section 140A of the Consumer Credit Act 1974.
The FCA found that many motor finance firms, including brokers and dealers, failed to disclose commissions or commercial ties between brokers and lenders.
This lack of transparency is what rendered many credit agreements potentially unfair, and the FCA concluded that around 44% of all motor finance agreements during the period involved inadequate disclosure and would therefore likely be considered unfair.
Who the Scheme Applies To
The scheme covers regulated motor finance agreements arranged through brokers, often car dealers acting as credit intermediaries, between April 2007 and November 2024. It applies where a commission was paid by a lender to a broker. Although both lenders and brokers fall under the scheme’s scope, lenders will administer the scheme and pay redress.
Role of Retail Car Dealers
Car dealers are considered credit brokers under the FCA’s rules and as such were required to disclose both the existence and nature of any commission, and whether they worked exclusively with one or more lenders. Many failed to do this. Despite motor dealers being involved in these disclosure failings, the FCA is proposing that lenders will handle redress delivery because there are far fewer lenders than brokers.
Who Pays the Redress
Lenders will pay redress directly to consumers. However, they may seek contributions from brokers (dealers) where appropriate. Dealers are not responsible for direct payments to customers, but they must cooperate fully by supplying relevant data and documentation.
Potential Dealer Liabilities
Although dealers are not directly liable to consumers, they may face indirect financial exposure if their finance lenders seek reimbursement. Motor dealers must provide records and cooperate with lenders or risk regulatory enforcement. The FCA will be monitoring compliance closely and may act against firms that fail to cooperate or provide misleading information.
Financial Impact Overview
The FCA estimates that there will be a total redress of around £8.2 billion, with an average payout of £700 per agreement. If administrative costs are included, the total industry cost may reach £11 billion. While most costs fall on lenders, dealer groups with captive finance arms could share in any financial exposure depending on contractual indemnities.
Summary – Implications for Retail Motor Dealers
Does the scheme apply? Yes, if a dealer acted as a credit broker arranging finance with commission.
Is the dealer responsible for paying redress to consumers? No – lenders will handle and fund payments.
Can lenders recover costs from dealers? Yes, potentially. Lenders may seek a contribution where dealer conduct caused or contributed to unfairness.
What must dealers do now? Preserve and supply records, co-operate with lender reviews, and prepare for possible indemnity claims.
What's the FCA supervision risk? Moderate. Full cooperation is expected, and non-compliance may lead to regulatory action.
Conclusion
For retail car dealers, the FCA’s proposed redress scheme does not make them directly financially liable to consumers.
However, lenders may seek contributions where dealer non-disclosure contributed to the unfairness. Dealers should therefore prepare for possible reimbursement claims, ensure full co-operation, and maintain compliance with FCA requirements.
We hope this summary is of use!
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