MPs Accuse Financial Conduct Authority of Favoring Lenders Over Borrowers in Car Finance Redress Dispute

MPs Accuse Financial Regulator of Favoring Lenders in Car Loan Compensation Scheme

London, United Kingdom – November 3, 2025 – A scathing report released today accuses the Financial Conduct Authority (FCA) of siding with lenders rather than borrowers in its forthcoming plan to compensate individuals mis-sold car finance agreements.The All-Party Parliamentary Group (APPG) on Fair Banking claims the regulator has been unduly influenced by concerns raised by financial institutions regarding potential profit losses.

The Core of the Dispute

The controversy centers around a redress scheme designed to reimburse customers who were overcharged due to commission structures between car dealerships adn lenders. The APPG’s report alleges that the FCA’s proposed compensation, estimated between £8.2 billion and £9.7 billion, significantly undervalues the total amount owed to affected borrowers, which the APPG estimates could reach as high as £15.6 billion. Thes lower estimates, according to the MPs, stem from figures originally produced by the FCA in 2019.

Concerns have also been raised about the complexity of the scheme’s calculations,which critics fear could be manipulated by lenders to minimize payouts. Furthermore, the proposed scheme would allow lenders to adjudicate claims against their former customers, essentially acting as both plaintiff and judge, a process the APPG deems unfair.

Lender lobbying and Regulatory Response

The APPG report explicitly points to lobbying efforts by lenders, who warned that a significant compensation bill could destabilize the financial market and discourage investment. The FCA, according to the report, appeared receptive to these concerns, repeatedly referencing the potential impact on lender profitability in its consultation documents. This focus on financial institutions, the APPG argues, came at the direct expense of consumer interests.

banks are currently planning to offer an average payout of £700 per claim, a figure the APPG states is considerably lower than the potential £1,500 an individual might receive by pursuing legal action. However, the FCA and banks caution that utilizing claims management firms for legal recourse could result in borrowers forfeiting up to 30% of their compensation to cover legal fees.

Timeline of Events

Date	Event
January 2025	Chancellor Rachel Reeves intervened in a Supreme Court hearing, urging judges to avoid “windfall” compensation.
August 2025	A Supreme Court ruling clarified aspects of the case, leading the FCA to revise its compensation estimates downward.
October 2025	Santander UK’s Chief Executive, Mike Regnier, called for ministerial intervention, claiming the FCA’s proposals could harm the economy.
November 3, 2025	The APPG released its report accusing the FCA of favoring lenders.

Did You Know? The Financial Ombudsman Service received over 10,000 complaints related to car finance in the last fiscal year, indicating widespread concerns about unfair lending practices.

FCA and Industry Reaction

The FCA defended its proposals, stating its aim is to deliver fair compensation efficiently and promptly. The regulator acknowledged differing viewpoints but emphasized the need for certainty to maintain a stable motor finance market.The Financing and Leasing Association has been contacted for comment but had not responded at the time of publication.

Pro Tip: If you believe you were mis-sold car finance, gather all relevant documentation, including your credit agreement, and consider seeking autonomous financial advice.

Labor MP Siobhain McDonagh, a member of the APPG and the Treasury committee, delivered a particularly critical assessment, asserting that the FCA had “patently been influenced by the profit margins of the lenders.” she concluded that the proposed redress scheme is demonstrably unfit for purpose.

Understanding Car Finance Commission

The core issue revolves around commission arrangements, which historically allowed lenders to pay dealerships a percentage of the loan amount, incentivizing them to inflate borrowing costs. This practice, now largely outlawed, led to many customers paying significantly more for their vehicles than they otherwise would have. The FCA’s intervention aims to rectify this past misconduct. As of late 2024, the average car loan APR has risen to 9.2% according to data from MoneySuperMarket, highlighting the ongoing importance of fair lending practices.

Frequently Asked Questions about the Car Finance Compensation Scheme

• What is the FCA car finance compensation scheme? It’s a plan to reimburse customers overcharged due to unfair commission practices in car loans.
• How much compensation could I receive? The average payout is expected to be £700,but this varies depending on individual circumstances.
• Is it worth pursuing a claim thru a claims firm? While potential payouts may be higher, legal fees could reduce your overall compensation.
• What if the FCA’s scheme doesn’t fully cover my losses? You may have other avenues for redress,such as pursuing a claim through the Financial Ombudsman Service.
• Who is responsible for administering the scheme? Lenders will be responsible for reviewing and processing claims under the FCA’s guidance.
• What is the deadline for claiming compensation? The FCA has not yet announced a firm deadline, but it is indeed expected to do so shortly.
• Were can I find more information about the scheme? Visit the Financial Conduct Authority’s website for the latest updates and guidance.

What are your thoughts on the FCA’s handling of this situation? Do you believe the proposed compensation scheme is adequate? Share your views in the comments below.

Is teh FCA’s initial redress scheme considered adequate by MPs to cover all affected consumers?

The Growing Car Finance Mis-selling Scandal

The Financial Conduct Authority (FCA) is facing mounting criticism from Members of Parliament (MPs) who allege the regulator is prioritizing the interests of lenders over those of consumers caught in the widespread car finance mis-selling scandal. This dispute centers around discretionary commission allowances (DCAs) historically used by car dealerships, which allowed brokers to inflate interest rates on car finance agreements without customers being fully aware. The scale of potential redress is estimated to be in the billions, impacting millions of UK consumers. Car finance complaints are surging, and the FCA’s handling of the situation is under intense scrutiny.

What are Discretionary Commission Allowances (DCAs)?

DCAs were a common practice in car loan arrangements, enabling lenders to give dealerships leeway in setting interest rates. This created an incentive for dealerships to increase rates, as they could earn a higher commission. Crucially, this wasn’t always transparent to borrowers.

* How DCAs Worked: Dealerships could add a percentage point (or more) to the interest rate, pocketing the difference as commission.

* Lack of Transparency: Consumers were often unaware that the interest rate was adjustable and that the dealership had the power to increase it.

* Impact on Affordability: Higher interest rates meant more expensive monthly repayments and a greater overall cost of credit.

The FCA banned DCAs in 2021, but the ban came after years of questionable practice, leaving a legacy of possibly unfair auto loan deals.

MPs’ key Accusations Against the FCA

Several MPs have voiced strong concerns regarding the FCA’s approach to the redress scheme. The core accusations include:

* Slow Response: Critics argue the FCA was too slow to investigate the issue and implement a ban on dcas.

* Narrow Redress Scheme: The proposed redress scheme, initially focused on a limited timeframe and specific types of loans, was deemed insufficient by many. Concerns were raised that it wouldn’t cover all affected consumers.

* Favoring Lenders: MPs suggest the FCA is structuring the redress scheme in a way that minimizes the financial burden on lenders, potentially at the expense of fair compensation for borrowers. This includes debates around the methodology for calculating compensation and the scope of the review.

* Lack of Urgency: The perceived lack of urgency in addressing the issue has fueled accusations of the FCA protecting the industry rather than consumers. PPI claims are often referenced as a comparison, highlighting the speed and scale of redress in that previous scandal.

The FCA’s Response and Current Status

The FCA maintains it is committed to ensuring fair outcomes for consumers affected by DCA practices. They have outlined a plan for a extensive review of historical hire purchase and personal contract purchase (PCP) agreements.

* Review Scope: The FCA is now reviewing cases dating back to April 2007, expanding the initial timeframe.

* Compensation Calculation: The FCA is developing a methodology for calculating compensation, aiming to restore borrowers to the position they would have been in had they been offered a rate without the DCA.

* Lender Contributions: Lenders are expected to contribute significantly to the redress fund, but the exact amount and allocation remain points of contention.

* Deadline for Lender Response: Lenders were given a deadline in November 2023 to provide data on potentially affected agreements.

What This Means for Borrowers – Practical Steps

If you believe you were mis-sold car financing,here’s what you can do:

1. Gather Documentation: Collect all relevant documents related to your car finance agreement,including the original agreement,statements,and any correspondence with the lender or dealership.
2. Check Eligibility: Determine if your agreement falls within the scope of the FCA’s review (agreements taken out before January 28, 2021).
3. Submit a Complaint: File a formal complaint with the lender. Keep a record of your complaint and any responses received.
4. Financial Ombudsman Service (FOS): If the lender doesn’t resolve your complaint satisfactorily, you can escalate it to the Financial Ombudsman Service. The FOS provides an autonomous dispute resolution service.
5. Stay Informed: Keep up-to-date with the latest developments in the scandal through reputable news sources and the FCA’s website. Consumer rights are central to this issue.

Real-World Example: The Impact of DCAs

Consider a consumer who financed a £20,000 car over five years. With a standard interest rate of 6%, their total repayment would be approximately £23,838.Though, if a dealership added a 1% DCA, increasing the interest rate to 7%, the total repayment would rise to £24,784 – a difference of over £900. for millions of consumers,these seemingly small increases added up to notable financial burdens.

The Future of Car finance Regulation

This scandal has prompted calls for more robust regulation of the motor finance industry. Potential changes include:

* Increased Transparency: Mandatory disclosure of