11th August 2025

Financial services industry about to be treated as a milking cow- again.

To borrow from the Sinatra classic, ‘Redress schemes, we’ve had a few, but then again too many to mention’.

Back in December the FCA extended the deadline for motor finance lenders to respond to complaints regarding historic commissions paid to dealers on car loans sold to assist the sale.

This FCA decision was made after the Court of Appeal decided that it was unlawful for a lender to pay vehicle sellers a commission on finance deals if the car buyer had not given their 'fully informed consent' to the payment.

Fast forward 8 months and the Supreme Court has now reversed that earlier court ruling that had opened the very real possibility of widespread compensation claims from motorists on a similar scale to the Pensions, Endowment and PPI mis-selling scandals of the last 3 decades. The appeal case was launched by two specialist lenders and thankfully the court ruled against the lender concerned in just one case. 

Lloyds, Close Brothers, Barclays, Santander and Bank of Ireland had previously set aside nearly 2 billion pounds between them. Some analysts had estimated that the potential compensation costs could be up to £44bn in a worst-case scenario

The lenders appeal rested on proof that Marcus Johnson had unwittingly signed up to a discretionary commission arrangement (DCA) – where more was paid in loan interest than should have been to boost the commission paid by the lender to the car dealer The Supreme Court said, in the case of Mr Johnson, that the commission paid to the dealer was so significant - 55% of the total charge or credit including interest and fees - that it was a "powerful indication" the relationship between Mr Johnson and lender was unfair and awarded Mr Johnson the amount of a commission plus interest. In all the other cases, the lenders won the day.

Had the decision gone against lenders it was understood that Rachel Reeves was considering overruling the supreme court’s decision with retrospective legislation, in order to help save lenders billions of pounds, in the event that it ruled in favour of consumers.

Now, despite this court ruling, the FCA has confirmed it'll consult before considering yet another redress scheme by October this year. Many car buyers who took out a CDA finance deal could still be in line for payouts although the FCA, who is considering such a scheme, said it would "take time to digest the judgement" regarding any other redress possibilities.

The industry should take some comfort that customers will not automatically get a payout just because they had a DCA although the criteria has yet to be decided by the FCA. Those who took out finance agreement that did not involve a DCA are not expected to receive any money. And importantly, any redress claims must include proof, something that historically has not always been the case! 

Of some two million new and used cars, around 90% are with a motor finance deal, often PCP’s, according to the FCA.

In times of national financial hardship, one could be forgiven to think that the solution for hard pressed families is the creation of another miss selling scandal bookended with a redress scheme to put things right for them. The message being heard here is that the car I wanted is just great, the finance that helped me buy it was great until I found out that somebody got paid a commission that I was not told about?????

Anyone with time served in this industry will recall the Pensions and Endowment reviews from the nineties and later from 2004. The former saw firms being mandated to write to clients with the letter placed in an A4 envelope with “Are you owed” in bold black print, subtly inviting a complaint.

Those with less time served will also understand a complaint regarding advice given in relation to a regulated product or in this case a car loan being taken should be made within 6 years of the date the advice or a further 3 years if the claimant had not any previous notification or concerns that there may be a problem. Yet still those with ‘Stinking Badges’ are still, in 2025, inviting claims going back as far as 2007. 

There must come a time, after so much regulation, that an element of caveat emptor should now prevail in financial services. History tells us that with previous reviews and redress schemes consumers are often encouraged to complain just in case they may have been missold with the benefit of hindsight, change of circumstances or aspirations, advice by pro-active lawyers or even just by lying to get some ‘compo’.

If a successful redress scheme is decided upon by the FCA, the outcome will see the cost of it fall on those banks who in turn will pass that cost on, by regulated car dealers who will pass their cost on to new buyers, by the FSCS who will deal with the compensation payments that come to their door as a result of regulated firms going out of business because they cannot pay the claim and, you guessed it, that tab will be picked up by regulated  firms who had nothing to do with this class of now regulated product.

It's a funny old world we live in?

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