8:31 am, November 4, 2025
The FCA’s car finance redress scheme is ‘not fit for purpose’ and could ‘short change’ millions of motorists.
That is according to a new report from the All-Party Parliamentary Group (APPG) on fair banking calls, which has been taking a deep dive into the proposals.
The group is now calling on the FCA to revisit its proposed compensation scheme, amid concerns from consumer groups that customers could miss out on more than £7bn.
The latest report draws upon analysis of 4.1 million car finance claims, which are currently being handled by law firm Courmacs Legal.
Under the watchdog’s scheme, consumers can typically expect to receive an average payout of £700 per car finance agreement – or £518 for those mis-sold a discretionary commission arrangement (DCA) loan.
However, according to the APPG’s report, the average compensation in DCA cases would be around £1,500 if they went through court, net of the legal fees.
Courmacs Legal said it got to the figure by analysing claims it has taken to court and where a consumer has got a financial settlement.
It also estimates that a total £6.5bn in compensation could be paid out through the courts, based on analysis of the millions of car finance claims it is currently handling.
The FCA has made clear that consumers do not need to use a claims management company (CMC) or a law firm to access its compensation scheme.
The financial regulator is even spending around £1m on a campaign to raise awareness of the potential perils of car finance claim adverts, which it says could lead to people losing more than 30% of their redress as a result.
Meanwhile, the APPG’s report argues that lenders will end up retaining about £7.4bn worth of profits made from the mis-selling scandal under the FCA’s proposed scheme.
It calculated the difference between the £8.2bn estimated total compensation bill and an estimated £15.6 billion excess profits generated from mis-selling to get to this figure.
Labour MP Dame Siobhain McDonagh said: ‘Our core finding is that the FCA has patently been influenced by the profit margins of the lenders when deciding upon levels of redress.
‘From proposing that lenders act as judge and jury on their own cases, to the extraordinarily low compensatory interest rate on offer, the scheme acts against the interests of the consumer and markedly favours sector interests.
‘Ultimately, this report comes to a clear and unambiguous conclusion – the redress scheme as proposed is not fit for purpose.’
The APPG is made up of made up of MPs and peers from across political parties.
The group’s report is at odds with several major UK banks who have also criticised the FCA’s proposals by arguing that payouts could be too high.
Santander’s UK chief executive Mike Regnier last week said that the scheme in its current form could ‘significantly impact jobs, growth and the broader UK economy’ and risks causing ‘significant detriment to the consumer’.
This is because of concerns that the payouts will have an impact on the supply of credit to consumers who need a loan on their car.
The FCA has said its free scheme is the quickest and simplest way for consumers to access compensation and for lenders to administer payouts.
It said said ‘alternatives would cost more and take longer’ and emphasised a need to ‘draw a line under the issue’.
The FCA has also said it welcomes ‘considered feedback’ to its proposals ahead of the scheme launching early next year.
The FCA has been contacted for comment on the APPG’s report.
