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The UK’s Financial Conduct Authority on Monday confirmed it will proceed with an industry-wide motor finance redress scheme, aiming to compensate millions of customers who were treated unfairly by lenders. The regulator said courts had found firms broke the law by failing to disclose key commission arrangements to borrowers, and that a centralised scheme would be the ‘quickest and most cost effective’ way to deliver compensation. The FCA estimates around 12.1 million agreements will be eligible for redress, down from 14.2 million proposed at the consultation stage, after tightening eligibility criteria. Agreements with minimal commission or zero interest rates will be excluded, alongside certain cases where lenders can demonstrate no consumer harm. The scheme is expected to see firms pay out around £7.5 billion in compensation, with total costs including administration estimated at £9.1 billion. This is lower than earlier projections of up to £11 billion. Among those lenders affected, Lloyds Banking Group PLC, which owns the UK‘s largest motor finance lender Black Horse, had previously raised its provisions for exposure to the scheme to £2.0 billion from £1.2 billion. Close Brothers Group PLC, another affected lender, said following the FCA’s announcement that it is assessing the potential implications of the redress scheme and will update the market as appropriate. Other institutions with exposure include Barclays PLC, Bank of Ireland Group PLC and Banco Santander SA. Motor finance agreements entered into between April 2007 and November 2024 will be considered, where lenders paid commissions to brokers such as car dealers. The FCA said it will operate two parallel schemes to cover pre- and post-2014 agreements, in part to reduce the risk of legal delays. Consumers will qualify for compensation where they were not informed about specific commission structures, including discretionary commission arrangements, high commission deals, or exclusive lender-broker ties. However, smaller commissions and interest-free loans are among the exceptions. In the most severe cases, involving very high commission levels and undisclosed arrangements, around 90,000 customers will receive full repayment of commission plus interest. In most other cases, compensation will be calculated using a hybrid method combining estimated losses and commission paid, with interest added. The FCA said it has adjusted compensation calculations to reflect higher levels of consumer harm in earlier years, applying a higher assumed impact on borrowing costs for agreements before 2014. To ensure fairness, payouts will be capped in around one-third of cases to avoid overcompensation. The regulator also introduced a minimum interest rate of 3% on redress payments. The scheme is expected to begin implementation later this year, with firms required to prepare systems by June or August 2026 depending on the loan period. Most consumers are expected to receive compensation during 2026, with remaining cases resolved by the end of 2027. The regulator said the scheme aims to provide ‘certainty for consumers and finality for firms and investors’, while supporting continued access to competitively priced motor finance. It added that without a coordinated scheme, handling complaints individually through courts and the Financial Ombudsman Service would cost firms billions more and lead to significant delays. The FCA said it will closely supervise firms’ compliance, requiring senior managers to take responsibility for delivery of the scheme. Copyright 2026 Alliance News Ltd. All Rights Reserved.
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