FLA urges scrutiny as FCA outlines £8.2bn motor finance redress plan

Core Viewpoint - The Finance & Leasing Association (FLA) has expressed concerns regarding the Financial Conduct Authority's (FCA) proposed sector-wide redress scheme for motor finance customers, emphasizing that the costs are "too high" and that the details require thorough examination before firms can evaluate the operational and financial implications [1][3]. Summary by Sections Consultation Overview - The FCA's 360-page consultation outlines a compensation plan for consumers charged unfairly under commission-linked car finance agreements from 2007 to 2024, affecting approximately 14.2 million agreements, which is 44% of all credit deals during this period, with an estimated £8.2 billion in redress [2][6]. Compensation Scheme - If enacted, this scheme would be the largest coordinated compensation effort since the payment protection insurance (PPI) redress program, with the FLA highlighting the need for careful scrutiny of the document to ensure consumer redress while maintaining market stability [3][4]. Market Stability - The FCA advocates for a centralized compensation scheme as the most efficient and fair method for redress, providing a consistent framework for consumers and certainty for firms, contrasting with a potentially lengthy process of individual complaints [4][5]. Implementation Costs - The FCA estimates the total industry cost, including implementation, to be around £11 billion, assuming an 85% consumer participation rate, with average compensation proposed at £700 per agreement, plus interest calculated at the Bank of England base rate plus 1% [6]. Legal Context - The consultation follows significant court rulings that clarified lenders' disclosure obligations, confirming that undisclosed high or discretionary commissions created unfair relationships under the Consumer Credit Act [7]. Investigation Findings - The FCA's investigation into 32 million motor finance agreements revealed "widespread failures" in disclosing commission arrangements, which hindered consumers' ability to make informed borrowing decisions and often led to higher effective interest rates [8].