For years lenders and brokers pocketed hidden commissions and loaded increased borrowing costs onto motor finance customers. The FCA itself now accepts and admits that “many firms did not comply with the law,” with millions losing out. The systemic unlawful behaviours is a damning reflection on the FCA itself. Yet the calculation method proposed in its consultation (CP25/27) provides those same firms with a golden handshake — and consumer kick.

The sleight of hand: paying consumers the average, not the sum

Under the scheme, the overwhelming majority of people will not receive all of the overcharged interest, including the undisclosed commission. Instead, the FCA proposes to pay the average of two figures — and then add only simple interest at Bank of England base rate + 1%. In plain English: consumers do not get back everything you were wrongly made to pay.

The FCA even acknowledges that consumers may not receive what they may expect in court.

A double discount: low simple interest

The FCA also proposes simple (not compound) interest at base + 1% per year — modelled at a weighted average of about 2.09%. This is yet another decision in favour of lenders, and the removal of any form of deterrent for historical wrongdoing. Think about it, if lenders have used the monies they unlawfully obtained to lend at an interest rate of 10 percent (for example), but only have to refund 2.09%, the lenders win again at the expense of consumers.

Regulatory failure, collusion or corruption in broad daylight?

This structure of the redress scheme has clearly been created to protect the motor finance sector, and those that have acted unlawfully, rather than to restore consumers faith by paying fair compensation. The FCA says it is “balancing” court judgments with its evidence base; in practice the balance falls away from full restitution:

• Averaging ensures consumers seldom receive both components of harm (overcharged interest and undisclosed commission).
• The interest add‑on is pegged to base + 1% (simple), yielding ~2.09%, encourages mis-selling.

When a regulator knows many firms acted unlawfully yet sets a calculator that under‑compensates, the signal to the market is grim: non‑compliance pays — That’s the opposite of deterrence.

“Orderly” for whom?

The FCA says a scheme is the best way to deliver redress “while protecting the integrity of the market” and keeping administrative costs low. Operational orderliness isn’t a defence for under‑compensation. Consumers shouldn’t bankroll “market integrity” by absorbing permanent losses born of lenders’ and brokers’ systemic unlawful behaviour.

A fairer starting point (the bare minimum for fairness)

• Repay all of the additional overcharge interest paid where applicable, plus any remaining undisclosed commission — with interest on top.
• Repay all of the commission for overtly large commission, or loyalty / volume commission arrangements – with interest on top.
• Raise the interest add‑on above base + 1% (simple), or at least add uplifts for long delay and vulnerability; the current modelling uses ~2.09%.
• Adverse inference for missing records: if lenders can’t evidence disclosure or commission data, use the average data to calculate refunds – with additional interest on top.

Our view

We make no allegation of proven corruption. But when a regulator knows many firms acted unlawfully and then proposes a calculator that systematically under‑compensates consumers to seek an “orderly” conclusion, it points to a short settlement with the industry rather than justice for the public. Perception matters. Trust matters more.

If the FCA’s goal is to “draw a line,” the line should be a clear deterrent to misconduct with fair compensation and substantial financial penalties. As things stand, misconduct and unlawful activities are being actively encouraged by the regulator itself. We’ve had PPI and motor finance mis-selling, with huge profits generated and retained, and the next scandal will be brewing without a clear deterrent. The consultation is open. The calculation method must change.