The Real Reason Lenders Are Kicking Off About the FCA’s Motor Finance Redress Scheme

Lenders and their trade bodies are currently doing what lenders do best when compensation is due… clutching pearls, warning of “market disruption”, and hinting darkly that the sky will fall on the UK car market if the FCA presses ahead with its proposed motor finance consumer redress scheme.

We’re told the fuss is about “legal uncertainty”, “operational complexity”, and “the wider economy”. And yes, the proposed scheme is complex (as much as the FCA suggests otherwise). It spans motor finance agreements taken out from 6th April 2007, and it asks lenders to identify affected customers, assess “unfair relationships”, and calculate redress at an industrial scale.

But here’s the point most consumers should keep front-of-mind… even as drafted, the scheme is already unfair to consumers. And yet lenders are still pushing back hard. That tells you something.

First: the scheme already short-changes consumers

The FCA’s consultation (CP25/27) proposes several methods for calculating compensation, including a “commission repayment remedy”, an “APR adjustment remedy”, and (for most cases) a “hybrid” that averages the two.

In plain English, instead of automatically putting consumers back in the position they would have been in without discretionary commission pushing up the interest rate, the scheme heads for a ‘simplified’ middle-ground. That might be tidy for spreadsheets but it’s not the same as a full refund of the overpaid interest that flowed from commission-driven unlawful rate inflation.

Then there’s compensatory interest. The FCA’s proposed approach broadly links interest to the Bank of England base rate plus 1% (a weighted average around 2.09%).

Almost all critics have called that “insulting”, and not without reason. Consumer groups and claims firms have argued this approach will strip billions from overall compensation compared with using a more genuinely “commercial” rate (often discussed around 7–8% in this context). Perhaps more concerning is that this paves the way for another mis-selling scandal as the deterrent of fair compensation is removed.

So yes, the scheme as it stands is already skewed away from full consumer recovery. Which raises the obvious question…

Why are lenders still panicking?

If the scheme is already weighted in favour of lenders, with profits still retained despite the unlawful way they were obtained, why the noise?

Because even in its current consumer-unfriendly form, it may still cost lenders more than the FCA’s headline estimate and the reason may be brutally simple:

Lenders underplayed the level of consumer harm when feeding data and assumptions into the regulator’s modelling.

The FCA’s scheme costings have been widely reported around £11bn total (including implementation and administration costs), with an average redress figure around £700 per agreement and around 14.2 million agreements potentially deemed unfair.

But the regulator’s estimate is still a model built on market provided data, assumptions, and sampling. And the incentives here are not exactly subtle – if you’re a lender facing an industry-wide investigation into wrongdoing, you don’t show up to the regulator’s data-gathering exercise waving a banner that reads “WE OVERCHARGED EVERYONE, A LOT”.

In fact, the FCA itself has described extensive engagement with lenders, investors, manufacturers and trade bodies, and it has emphasised the need for evidence on “specific concerns” and alternative approaches before it finalises rules (expected February or March 2026).

Now add one more detail lenders won’t enjoy. Under the proposals, where evidence of disclosure is missing, lenders may have to presume disclosure was inadequate (it always was).

So here’s the uncomfortable possibility for the industry. Lenders, in all likelihood, “managed” the narrative of harm while the FCA was building its model, but once they’re forced to run the scheme against their actual book, deal-by-deal, the numbers could balloon.

And if that happens as we suspect, today’s lobbying isn’t about “fairness” at all. It’s about getting the FCA to water the scheme down even further so the lenders’ downside is capped before the real-world totals surface.

Watch the choreography… “We support redress… but not like this”

This is the classic line. Lenders insist they’re committed to fair outcomes, while simultaneously arguing the FCA’s approach is wrong, disproportionate, or legally shaky.

For example, Santander publicly flagged uncertainty about scope, methodology and timing, and suggested “material changes” should be considered, even hinting at the need for government involvement.

Other firms have criticised whether the methodology reflects “actual customer loss” or achieves a “proportionate outcome”.

Translated from bank-speak, that often means “We prefer a system where we pay less, to fewer people, with more friction, and with more ability to rebut or narrow liability.”

The PPI playbook is back

This is where the déjà vu kicks in.

The FCA’s own published data shows that, from January 2011 to December 2019 alone, firms paid around £38.3bn in PPI refunds and compensation.

And PPI became the cautionary tale regulators keep referencing, a slow-burn scandal with a final bill that was enormous, prolonged, and reputationally toxic.

It’s no surprise the FCA has openly framed this motor finance scheme as a way to deliver redress “in an orderly, consistent and efficient way” and avoid an endless saga.

But here’s the kicker… in PPI, the industry repeatedly underestimated provisions early on, yet the numbers kept climbing. If lenders have, as we suspect, similarly downplayed motor finance harm at the modelling stage, they’ll be desperate not to repeat the same mistake, because the market has a long memory and a short temper.

In other words, lenders aren’t fighting because the FCA scheme is generous to consumers. They’re fighting because the industry knows that the FCA’s estimate may be the floor, not the ceiling.

What this means for consumers right now

Even the FCA’s own materials have noted that consumers who complain ahead of the scheme (if it is introduced) may get assessed and paid sooner than waiting to be contacted.

And if the final version of the scheme stays as conservative as currently proposed, consumers will need to pay close attention to whether their redress truly reflects what they paid because commission pushed their APR north.

What is become clearer is that many consumer representatives will seek to take claims via the legal route, which is likely to provide fairer compensation for consumers in comparison to the FCA scheme.

Final thought: when the people holding the pen are still lobbying, follow the ink

If you ever want to understand what’s happening in financial services, ignore the press releases and watch what gets lobbied.

The industry is lobbying because it’s scared. Not of overcompensating consumers, but of what the true scale of harm looks like once the numbers stop being “submitted data” and start being “actual liability”.

And if that sounds familiar… it should. We’ve seen this film before.