City watchdog extends motor finance consultation after backlash
The City watchdog has extended its consultation for its motor finance redress scheme following mounting backlash from lenders and consumers.
The Financial Conduct Authority (FCA) announced that it would push back the deadline – initially scheduled for 18 November – to 12 December at 5:00pm.
The final criteria of the scheme is expected to be outlined as early as February 2026.
The changes have been announced after lenders criticised the regulator for what they branded a “disproportionate” scheme that forced them to hike redress provisions.
Lloyds Banking Group – which owns the UK’s largest car finance provider Black Horse – was forced to hike provisions to £2bn from £1.2bn.
While FTSE 250 lender Close Brothers near-doubled its funds set aside to £300m and Barclays almost quadrupled its provisions to £325m.
Santander UK pulled the plug on its third-quarter results last week, citing uncertainty in the motor finance sector, as bank chief Mike Regnier called for the government to consider stepping in to help mediate.
He warned if the government does not intervene “the unintended consequences for the car finance market, the supply of credit and the resulting negative impact on the automotive industry and its supply chain could significantly impact jobs, growth and the broader UK economy.”
A key area of contention concerns the assessment of “unfair” – the criteria the Supreme Court upheld in one claimant’s case against lenders.
The top Court ruled in favour of one of three claimants after finding their outsize commission of 55 per cent was “unfair”.
However, the FCA has said the threshold for its redress – where 14.2m agreements are estimated to be eligible – will be 35 per cent.
Motor finance row revs up
However, there has been an equal backlash on the consumer front, with the All-Party Parliamentary Group (APPG) on Fair Banking blasting the City watchdog for a “£4.4bn billion gap” in the proposed scheme.
The group accused the regulator of being “influenced by the profit margins of the lenders”.
The FCA said: “It’s important we receive as much evidence as possible on specific concerns through the consultation as well as alternative suggestions if respondents don’t agree with our proposals.
“We’ll consider all the evidence and ideas received before taking final decisions.”
However, the watchdog noted that it was still considering whether to extend the pause on complaints beyond 4 December.
“Complaints cannot be paused indefinitely,” the regulator said.
“It is therefore important, in particular for lenders, to maintain the pace so we can draw a line under this issue and bring certainty to their customers, the market and investors.”