The Financial Conduct Authority (FCA) is considering plans for an industrywide redress scheme as the regulator outlined the latest steps of its review into motor finance failings.

Historic motor finance discretionary commission arrangements (DCAs) have been under review by the FCA since January last year.

The FCA’s 2021 ban on DCAs removed the incentive for brokers to increase the interest rate that a customer pays for their motor finance. However, a high number of complaints from customers to motor finance firms followed, claiming compensation for commission arrangements prior to the ban.

Since the FCA first launched its review, a ruling by the Court of Appeal has raised the possibility of “widespread liability” among motor finance firms wherever commissions were not properly disclosed to customers.

Lloyds is one of a number of motor finance providers to have set aside funds for potential payouts, and the bank revealed last month that it was keeping £700m aside to cover any potential remediation costs from the impact of the FCA’s investigation.

Barclays, which ceased operating in the motor finance market in 2019, also announced last month it would set aside £90m for potential redress.

The FCA has today issued an update into its ongoing review, stating it would confirm within six weeks of the Supreme Court’s decision whether it will propose a redress scheme, and the potential plans to take it forward.

Under a redress scheme, the regulator stated that firms would be responsible for determining whether customers have lost out due to a firm’s failings.

“A redress scheme would be simpler for consumers than bringing a complaint,” the regulator added. “We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive.

“It would also be more orderly and efficient for firms than a complaint led approach, contributing to a well-functioning market in the future.”

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