9:43 am, August 12, 2025
A House of Lords committee has raised concerns over the Financial Conduct Authority’s proposed redress scheme for customers who were mis-sold motor finance.
Car Dealer reported earlier this month that the FCA is to consult on a large-scale compensation package, which could reach as much as £18bn.
The scheme is expected to accept claims dating all the way back to 2007, leading to questions over fairness.
Dealers are not legally required to hold documents stretching back that far and the Finance and Leasing Association have described records as ‘patchy at best’.
Now, senior members of the House of Lords have raised similar concerns in a letter to FCA boss Nikhil Rathi.
Lord Forsyth of Drumlean, chair of the Financial Services Regulation Committee, said the group is ‘concerned by certain aspects of the FCA’s forthcoming redress scheme’.
He also emphasised the need to ‘ensure the integrity of the motor finance market’ and ‘provide certainty to consumers’.
The notes come in response to a letter sent by Rathi on August 4, in the wake of the Supreme Court’s landmark ruling three days earlier.
In his original message, the FCA CEO said that it was in the ‘interest of both consumers and firms for the scheme to go back to 2007 to ensure that complaints in this period are dealt with in an orderly, consistent and efficient way’.
However, former Tory minister Lord Forsyth has now challenged the legal position of the stance.
He wrote: ‘The FCA thinks that the forthcoming redress scheme should cover motor finance agreements dating back to 2007, on the basis that this is consistent with consumers’ rights to take complaints to the Financial Ombudsman Service (FOS).
‘Given that the basis of the claims for which any compensation would be payable will primarily be based on a breach of the Consumer Credit Act, the Committee considers that a period which is aligned with the limitation period for bringing a claim in the courts, specified by the Supreme Court [six years], may be more appropriate.
‘What legal advice has the FCA taken on this point? What legal grounding underpins the FCA’s proposed timeframe?’
Costs come under the microscope
The cost of the potential scheme was also called into question by the Lords. Under the current proposals, the bill is expected to be between £9bn and £18bn but the committee was keen to know the total would be, if only accepting claims from the last six years.
Lord Forsyth added: ‘The FCA’s indicative estimate of the scale of redress is particularly important given the impact on the share price of listed lenders and the need for an orderly market.
‘What modelling has the FCA undertaken on the indicative cost of a redress scheme with a time frame in line with the six-year limitation period for complaints brought in the courts?’
In his original letter, Rathi also admitted that the 2007 date could lead to ‘potentially several billion of admin costs’.
In response, the committee has called on the regulator to ensure that any costs are ‘proportionate’ and requested that the FCA appear before the group in September.
Lord Forsyth said: ‘The committee has emphasised the need to avoid regulatory unpredictability and has been consistent in its view that market uncertainty around redress, as well as the broader burden of regulation, risks rendering certain financial services prohibitively expensive for UK consumers.
‘Noting the importance of the motor finance market to consumers, the Committee requests the FCA to appear before the Committee in September to respond to our concerns.’
The full letter, signed by Lord Forsyth, can be viewed here.
