The FCA is proposing an industry-wide redress scheme for historic motor-finance commission practices. While the aim of delivering consistent and timely consumer redress is a good one, the scheme as it iscurrently drafted raises concerns around fairness, proportionality and legal robustness. Chief Exec Jonathan Davis considers the issues.
A sensible objective, but risky execution
There is clear evidence that parts of the motor-finance market suffered from poor disclosure and misaligned incentives in the past. An industry-wide solution is preferable to a flood of individual complaints. However, the proposed scheme risks over-correcting in ways that could harm both firms and consumers.
Retrospective standards are the biggest problem
The most significant issue is the retrospective application of today’s standards to conduct that was permitted at the time.
Discretionary commission arrangements were not banned until 2021. Prior to that, they were widespread, openly used, and considered compliant provided the disclosure requirements in place at the time were met. Applying a presumption of unfairness to agreements going back to 2007 risks creating the impression of retrospective regulation, undermining regulatory predictability and trust.
Compounding this is the assumption that firms should still hold detailed commission and broker data from nearly two decades ago. In reality, there was never a requirement to retain such records long-term. Many firms simply do not have the data, and were never required to retain it.
Presumed unfairness and arbitrary compensation
The scheme assumes broad presumptions of “unfair relationships” and a uniform compensation formula. However, the FCA has not clearly demonstrated how this calculation reflects actual consumer detriment on a deal-by-deal basis.
Applying a single redress methodology across very different historic business models risks arbitrary outcomes and exposes the scheme to legal challenge. Several industry stakeholders have already warned that without reform, the scheme is vulnerable to judicial review which would create years of uncertainty for firms and consumers alike.
Sub-prime lending is being misunderstood
A major blind spot is sub-prime motor finance.
Small loans, high APRs and flat fees can look excessive when expressed as percentages, but these reflect genuine risk and operating costs, not commission distortion. Treating sub-prime pricing the same way as prime lending risks forcing firms to pay redress to consumers where there was no consumer detriment. This would ultimately reduce access to credit for higher-risk borrowers.
The FCA needs a distinct framework for assessing sub-prime agreements, rather than assuming that “high percentage” always means “unfair”.
Market impact and unintended consequences
Large retrospective liabilities could push some lenders (especially smaller firms), out of the market, reduce competition, and drive up future APRs as firms seek to recover costs. These effects would disproportionately impact sub-prime consumers.
Claim management companies add no value
If the scheme works as intended, i.e. automatic, firm-led and frictionless, claim management companies provide no benefit in the process. Instead, they risk siphoning off 20–40% of consumer compensation for their fees, often targeting vulnerable borrowers. Excluding or restricting claims management company involvement from the scheme would better align with the FCA's consumer-protection goals.
The bottom line
Ingeni believe that the FCA’s scheme is well-intentioned, but in its current form it risks being:
• Retrospective rather than fair
• Arbitrary rather than compensatory
• Legally vulnerable rather than robust
• Damaging to competition and credit access
With clearer boundaries, evidence-based compensation, proper treatment of missing records, and a differentiated approach to sub-prime lending, the scheme could achieve its goals without destabilising the market.
Until then, it remains a solution that may create more problems than it solves.
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