The FCA’s Letter To The Treasury Committee: A Regulator That Seems More Annoyed At Being Challenged Than At The Scandal Itself

The FCA’s recent letter to the Treasury Committee should trouble anyone who still believes the regulator is approaching the motor finance scandal with the independence, urgency and consumer-focused determination that the situation demands.

On the surface, it is presented as an update to Parliament on the proposed redress scheme, the legal challenges and the practical timetable for compensation. However, reading between the lines, it appears to be something rather different. It reads, in my view, like a regulator that has been embarrassed into action, that does not like the fact its scheme is now being challenged, and that seems to reserve a surprising amount of its frustration for the very representative firms that helped drag this scandal into daylight in the first place.

That is what makes the letter so revealing. The FCA is not writing from a position of triumph. It is not writing as a regulator that spotted misconduct early, intervened firmly, punished those responsible and secured swift justice for consumers. It is writing as a regulator that was warned years ago, failed to act with anything like the speed required, watched others take the fight forward, and now appears irritated that those same parties will not simply accept a watered-down redress scheme on the FCA’s terms.

The FCA Was Told In 2016, So Let Us Not Pretend This Is A Recent Discovery

One of the most extraordinary aspects of the FCA’s position is its apparent suggestion that there can be debate about whether it could have acted sooner. That may be convenient language for a regulator trying to avoid hard questions, but consumers should not be distracted by it.

The FCA was made aware of the motor finance commission issues back in 2016 by a whistleblower. That is the point which should be repeated every time the FCA tries to frame this scandal as a complex matter that only recently crystallised into something actionable. The warning signs were there, the concerns had been raised, and the regulator had the powers and the responsibility to get to the bottom of what was happening across the market.

Instead, years passed while consumers continued to pay finance agreements that, in many cases, were infected by commission arrangements they had not been properly told about. Dealers benefited, lenders benefited, the market carried on, and the FCA did what the FCA so often does when ordinary consumers are being harmed by large financial institutions… it moved slowly, consulted with the guilty parties, and acted far too late.

So when the FCA now uses careful wording around whether it could have acted sooner, the answer is not complicated. It could have acted sooner, it should have acted sooner, and the fact that this scandal has now reached the point of mass redress is not proof of regulatory success, but proof of regulatory failure that became too large to ignore.

The Firms Now Being Criticised Are The Firms That Forced The Issue

The tone of the letter appears to take aim at representative firms, claims management companies, law firms and those involved in bringing claims on behalf of consumers. Of course, nobody is suggesting that any professional representative should be beyond scrutiny, quite the opposite. Where there is poor conduct or misleading advertising that must be dealt with in the form of prompt and firm action, serving as a clear deterrent.

However, that is not the full story, and it is certainly not the story the FCA should be allowed to tell unchallenged.

The firms now seemingly being treated as part of the problem are the very firms that helped expose the problem. They pursued complaints when lenders unfairly rejected them. They pushed for disclosure when firms did not want to provide it. They challenged comfortable assumptions. They funded litigation. They helped force this issue through the courts and ultimately towards the Supreme Court, while the FCA, which now appears so keen to manage the process, simply chose not take that fight on behalf of consumers.

That point matters because the FCA appears to want the public and Parliament to view representatives as an irritant, a cost, or a risk to the orderly delivery of redress. Yet without those representatives, without the complaints, without the challenges and without the pressure applied outside the regulator’s own machinery, it is difficult to see how this scandal would ever have moved at the pace or scale it eventually did.

The FCA did not lead the charge. It arrived late, as it always does, and now seems unhappy that those who did the hard yards are not willing to step aside quietly.

Lenders Broke The Law, But Where Is The Deterrent?

Perhaps the most damning part of the FCA’s position is that it openly accepts that lenders acted unlawfully. That should be a watershed moment. It should lead naturally to enforcement, public accountability and fines that send a clear warning to the wider financial services industry that unlawful conduct will not merely result in a managed repayment exercise years later.

Yet where are the fines?

Where is the punishment?

Where is the deterrent that tells lenders this conduct was not simply unacceptable, but commercially dangerous?

There appears to be a gaping hole between the FCA’s acknowledgement of unlawful conduct and any meaningful consequence for those responsible. Redress is not a punishment. Redress is the return of money consumers should not have lost in the first place. If lenders can act unlawfully, resist complaints, benefit from delay, keep the money for years, and then eventually repay a portion of it under a scheme designed with market stability in mind, that is not justice in any meaningful sense.

That is a managed cost of doing business, and an acceptable risk.

This is the real danger. Without fines, without public enforcement action, and without consequences that hurt, the message to the industry is not that misconduct will be crushed. The message is that misconduct may be tolerated until it becomes too large to ignore, at which point the regulator will step in to manage the fallout in a way that protects the market more than it protects consumers.

That is not what consumers need from a regulator.

The FCA Seems Far More Concerned About Legal Challenges Than About Why The Scheme Is Being Challenged

The FCA’s letter also places weight on the impact of legal challenges, particularly the suggestion that compensation could be delayed. This is a convenient line for the regulator because it allows it to portray those challenging the scheme as standing in the way of consumer redress, rather than asking the more uncomfortable question of whether the scheme itself is fair, lawful and adequate.

That distinction is crucial.

In relation to the consumer focused challenge, it is not a reckless attempt to destroy the entire scheme and leave consumers with nothing. It seeks to pause certain elements of the scheme. That is a very different proposition, and it is one that the FCA should be addressing honestly rather than allowing the public narrative to drift towards the idea that challengers are simply delaying justice.

If parts of the FCA’s scheme are flawed, they should be challenged. If the scheme is too favourable to lenders, it should be challenged. If consumers are at risk of being underpaid because the regulator wants a neat and controlled resolution, it should be challenged. A redress scheme is not automatically fair simply because the FCA drafted it, and consumers should not be expected to accept less than they may be entitled to just because the regulator wants to draw a line under a scandal it failed to stop.

Speed is important, but speed cannot be used as a weapon against fairness. A quick redress scheme that short-changes consumers is not justice. It is administrative convenience dressed up as consumer protection.

Lenders Are Still Not Ready, Which Says Everything

The FCA also accepts that many lenders are still not ready to commence issuing compensation, which should be a source of real anger for consumers who have already waited far too long.

These lenders have known about the issue for years. They have seen the complaints. They have seen the court decisions. They have seen the regulatory direction of travel. They have had more than enough time to prepare systems, identify affected agreements, review commission arrangements, calculate possible redress and get themselves into a position where consumers can be paid promptly.

Yet still, many are apparently not ready.

That is not a minor administrative inconvenience, but yet another example of an industry that has been allowed to move at its own pace, while consumers are expected to remain patient and while the FCA appears more comfortable warning about claims firms and legal challenges than demanding immediate operational readiness from the lenders whose conduct caused the harm.

If the regulator wants to complain about delay, it should start with the firms that broke the law and are still not ready to compensate people.

The FCA’s Real Instinct Appears To Be Protecting The Market

The FCA will always say it is balancing competing interests, and no doubt it will argue that it must protect consumers while also maintaining a functioning motor finance market. The problem is that consumers have heard this language too many times before.

Whenever a major scandal emerges, the same pattern appears. The harm to consumers is acknowledged, but only after years of delay. The industry is criticised, but not punished in any way that is proportionate to the damage caused. Compensation is discussed, but always through the lens of what is manageable for firms. Representatives are treated with suspicion, even where they were instrumental in exposing the problem. The market is protected, the lenders are given time, and consumers are asked to wait.

This is why the FCA’s letter is so revealing. It appears less like a regulator determined to hold lenders to account and more like a regulator trying to regain control of a scandal that others forced into the open.

The FCA seems to resent the fact that representative firms have shamed it into action. It seems to resent the fact that its scheme is being challenged. It seems to resent the fact that the courts, consumers and professional representatives have all played roles that expose the weakness of its own response.

That resentment should worry Parliament, because a regulator that is more annoyed at being challenged than it is at unlawful conduct has lost sight of its purpose.

Lawful Disclosure Has Not Destroyed The Market, It Has Exposed The Industry’s Nonsense

There is another point in the FCA’s letter which deserves far more attention than it will probably receive, because it cuts straight through one of the motor industry’s favourite scare stories. The FCA itself refers to new car sales having grown by nearly 9% over the last year, which rather inconveniently arrives after the industry has moved into a world where commission disclosure and customer consent can no longer be treated as optional extras, hidden somewhere behind the sales desk and revealed only when the customer starts asking difficult questions years later.

Since 2024, the motor finance industry peddled its doomsday warnings about what would happen if transparency was properly enforced, and fair redress paid. We were told directly that the market would suffer, lending would become harder, dealers would struggle, consumers would lose access to finance, and the entire motor sales machine would somehow grind to a halt if lenders and dealers were forced to tell customers the truth about commission arrangements. It was always a laughable position, because an industry that depends on secrecy is not defending consumer choice, it is defending margin, commission and the ability to keep customers in the dark.

The latest sales figures expose that argument for what it always was. A complete fabrication. New car registrations have not collapsed because firms are now required to disclose commission and obtain proper consent. The market has not imploded because consumers are being treated with a little more honesty. Dealers have not disappeared because customers are now entitled to understand who is being paid, how much influence that payment may have, and whether the finance recommendation is genuinely suitable or simply more profitable for the dealership and lender.

This matters because it destroys the wider industry narrative that consumer protection and commercial growth cannot sit together. They plainly can. Acting lawfully does not prevent cars being sold. Acting ethically does not stop finance being written. Telling customers the truth does not kill the market. What it does kill, or at least threaten, is the old model of inflated commissions, poor disclosure, conflicted incentives and customers being pushed into arrangements they did not properly understand.

So when the FCA talks about a healthy and sustainable motor finance market, it should remember what these figures prove. A healthy market does not need secrecy to survive. A sustainable market does not require consumers to be kept ignorant. The growth in new car sales after strengthened commission disclosure requirements shows that the industry’s previous warnings were not serious economic analysis; they were a self-serving attempt to protect pockets, preserve commissions and frighten regulators away from doing what should have been done years ago.

We’d heard the baseless warnings from the market before during the PPI scandal, yet the FCA have fallen for it yet again, hook, line and sinker.

Consumers Should Not Be Distracted From Who Caused The Harm

The motor finance scandal was not caused by consumers submitting complaints. It was not caused by representative firms identifying wrongdoing. It was not caused by law firms taking difficult cases forward. It was not caused by legal challenges to a scheme that may not go far enough.

It was caused by lenders and brokers operating commission arrangements that consumers were not told about, in a market that the FCA was responsible for regulating.

That is the point which must not be lost.

The FCA can talk about the risks posed by representatives, the complexity of delivery, the disruption caused by legal challenge and the need for a sustainable market. It can use all the regulatory language it likes. But none of that changes the uncomfortable reality that consumers were harmed, lenders profited, the regulator was warned, and action was inadequate and came far too late.

Now the FCA appears to want sympathy because its scheme is being challenged, while the firms responsible for the misconduct have still not faced the level of punishment that would deter the next scandal.

That is not good enough.

The Letter Says More About The FCA Than It Says About The Challenges

The FCA may have intended this letter to reassure the Treasury Committee that it has matters under control, but for many consumers and representatives it will do precisely the opposite. It exposes a regulator still trying to manage the optics, still trying to shape the narrative, and still far too willing to present the claims industry as a problem while lenders remain the beneficiaries of delay, caution and regulatory restraint.

This scandal should have been stopped years ago. It was not. The FCA should have acted when the whistleblower raised the alarm in 2016. It did not. Lenders that acted unlawfully should now be facing serious consequences. They are not. Consumers should already be on a clear and fair path to compensation. They are not.

Instead, we have a regulator complaining about the very pressure that forced the issue forward in the first place.

That tells consumers everything they need to know.

The FCA has been shamed into action, embarrassed by those who refused to let this scandal be buried, and is now showing what appears to be its true instinct: protect the market, manage the lenders, control the fallout, and take aim at the representatives who would not stop asking difficult questions.

Consumers deserved better in 2016, they deserved better during the years this scandal was allowed to grow, and they deserve better now than a regulator that seems more focused on defending its scheme than delivering full and fair justice.

The Next Scandal Is Already Here – GAP Insurance

The lack of any clear deterrent in a finance industry only serves to encourage misconduct, and the motor finance industry has an equally disturbing sibling.

A lack of commission disclosure didn’t stop with the sale of the motor finance agreement, it seeped into the additional products sold by the dealership.

Payment Protection Insurance (PPI) used to be a huge profit stream for dealerships and lender, given the huge commissions received by selling the product. But when the PPI scandal took hold, again because of representatives taking action, dealerships and lenders had to adjust, adapt and find a new product to sell in order to replace the significant lost revenues of PPI. The chosen product was GAP insurance, almost always sold alongside motor finance. Grotesque undisclosed commission, inadequate suitability assessments, and PPI was replaced in an instant.

Our evidence of systemic and widespread mis-selling has been put before the Financial Ombudsman Service and the FCA. We are the whistleblower, and it won’t surprise anybody that the regulator has been notably quiet.

The pattern will no doubt repeat… Representatives fight, FCA stays quiet, dealerships and lenders unfairly reject, FCA stays quiet, representatives raise awareness and complaints increase, FCA stays quiet, representatives challenge and create a precedent, FCA stays quiet, media attention is obtained, the FCA is embarrassed into action and steps forward to protect the market, choosing instead to target representatives.

Rinse and repeat.