Regulatory Oversight
Reg experts advise motor lenders to ‘plan nowʼ for FCA redress scheme
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August 20, 2025
The UK Supreme Courtʼs motor finance decision does provide a “binary” answer for the Financial Conduct Authority (FCA) to follow when designing its industry-wide redress, according to regulatory experts.
Firms are advised to start planning now for how they will work through their parked complaints, including checking what documentation they have and considering to what extent they might automate their redress scheme and how many staff they might need to process complaints, as well as updating the regulator on the likely cost of their redress bill.
The FCA itself put the cost for industry at a maximum of £18 billion, in a statement following the Supreme Court decision at the beginning of the month.
Speaking during a webinar on August 5, Lorraine Johnston, a partner in the global finance regulatory practice at law firm Ashurst, said the Supreme Court “had not given the binary decision” on Section 140A of the Consumer Credit Act that the FCA had been hoping for.
She said that fairness — and therefore access to redress — was still “very fact-specific”.
The Supreme Court dismissed Hopcraft and Wrench, concluding that car dealers did not owe a fiduciary duty to those they arranged motor finance for, and that paying commission was not a bribe. It upheld the Appeal Court decision in Johnson v MotoNova, which concluded that the relationship between the parties was unfair (see box).
Alison Barker, a special adviser to accountancy and business advisory group BDO, said firms should begin checking how they can evidence the sophistication of their customers. “How much information was collected?” she said during an August 8 webinar.
A data discovery exercise with gap analysis is a vital first step.
BDO managing director Ross Swan advised lenders to start thinking about the governance for their redress programme now. This should include creating a dedicated programme team to oversee the redress, evidence good outcomes and provide quality assurance for the FCA.
Firms will also have to consider how they will contact affected customers — a task that became more critical following a warning last week from the FCA that it was aware fraudsters were already cold-calling UK citizens with scam offers of motor finance compensation.
Beyond motor redress
Lenders beyond those offering motor finance were also advised to review their retail product document and sales practices in light of the Supreme Court decision.
Where brokers promise that finance is selected from a panel of lenders, this should be clearly evidenced, according to Jo Davis, founder of law firm Auxillias, and they should also consider the prominence and placement of information provided on commission.
The FCA’s Consumer Duty requirement for firms to test consumer understanding of their products has been underpinned by the Supreme Court judgment, which has clearly set out what unfair documentation looks like.
The FCA will consult on its redress scheme in October.
Unfair relationship
Lord Reed of Allermuir, president of the Supreme Court, explained the unfairness of the relationship in his hand down remarks: “First, the size of the commission paid by the finance company to the dealer: it amounted to 55% of the charge for credit. The fact that the undisclosed commission was so high is a powerful indication that the relationship between Mr Johnson and the finance company was unfair.
“Secondly, it is highly material that the documents provided to Mr Johnson did not disclose the existence of a commercial tie between the finance company and the dealer, under which the finance company was given a right of first refusal of customers referred by the dealer. Instead, the documents created, and were intended to create, the completely false impression that the dealer was offering products from a selected panel of lenders and recommending the finance product that best met Mr Johnson’s individual requirements.
“Thirdly, on the other side of the scales is Mr Johnson’s failure to read any of the documents provided by the dealer. However, Mr Johnson was commercially unsophisticated, and the court questions the extent to which a finance company could reasonably expect a customer to have read and understood the detail of such documents, particularly when no prominence was given to the relevant statements.”