The Financial Conduct Authority (FCA) is poised to consult on an industry-wide redress scheme if its ongoing review confirms that motor finance customers have lost out from widespread failings by firms.

In a statement released on Tuesday, the City regulator said it wants "to provide as much certainty as possible to firms, consumers and stakeholders" regarding its review of discretionary commission arrangements (DCAs) in motor finance.

The announcement follows a Court of Appeal ruling that has raised the possibility of widespread liability among motor finance firms wherever commissions were not properly disclosed to customers. The Supreme Court is scheduled to hear an appeal against this judgment from 1 to 3 April.

"We are confirming that if, taking into account the Supreme Court's decision, we conclude motor finance customers have lost out from widespread failings by firms, then it's likely we will consult on an industry-wide redress scheme," the FCA stated.

Under such a scheme, firms would be responsible for determining whether customers have suffered financial loss due to their failings and would need to offer appropriate compensation. The FCA would establish rules that firms must follow and implement checks to ensure compliance.

The regulator highlighted that a redress scheme would simplify the process for consumers compared to submitting individual complaints. "We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive," the FCA added.

According to consumer champion Martin Lewis, founder of MoneySavingExpert.com, a redress scheme would require lenders to proactively contact all affected borrowers. "Therefore, people won't need to complain – they will be paid out an amount dictated by the FCA to firms based on their situation," Lewis said.

The car loans scandal has been developing for over a year and could potentially cost lenders, including Santander UK, Close Brothers, Barclays and Lloyds, a collective £44bn according to some analysts' estimates.

Jenny Ross, editor of Which? Money, commented: "While much still rests on the Supreme Court decision, a redress scheme would remove the need for consumers to make a direct complaint to providers. This could greatly simplify the process and reduce the need for claims management firms to be involved, increasing the chances of motorists getting 100 per cent of any payout that may be awarded."

The FCA has committed to confirming within six weeks of the Supreme Court's decision whether it will propose a redress scheme and how it plans to implement it.

The Financial Ombudsman Service recently reported that hire purchase related to motor vehicles generated the most complaints between October and December 2024, with increasing case numbers due to complaints about motor finance commission arrangements.

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