Carmakers to skirt a crash in £11bn motor finance redress
UK carmakers are set to curb a hefty hit in the City regulator’s forthcoming redress scheme for the motor finance scandal.
Captive lenders, in-house lenders of manufacturers, are to be granted some reprieve by the Financial Conduct Authority (FCA) after relentless lobbying that the scheme could hamper investment in the UK.
The FCA was forced to kick back the deadline for its car finance redress scheme last year as opposition from both consumers and lenders mounted to the £11bn proposal.
In the proposal, the financial arms of carmakers were expected to shoulder 47 per cent of the redress owed to borrowers, bringing their bill to roughly £5.2bn.
A number of major automakers have set aside provisions through their financial subsidiaries in anticipation of a hit, with BMW on the hook for £200m, Mercedes-Benz £423.8m and Ford £61m.
Ford has attempted to secure a meeting with Chancellor Rachel Reeves as tensions flared over the scheme’s consequences for the economy.
FCA facing motor finance opposition from all sides
The motor finance row centres on the use of discretionary commission agreements (DCAs), which were ‘secret’ commission paid by lenders to car dealerships. The battle over the use of DCAs escalated to the Supreme Court last year, where the top court handed banks a lukewarm win but left the door open for a regulatory redress scheme.
Carmakers have pushed back on one of the three key areas of the redress, as first reported by the FT, arguing that their loans cannot be classed as “tied agreements” because the low rates they offer are incentives for consumers to purchase vehicles.
The FCA has said: “We’re carefully considering feedback and decisions on final scheme rules have not been taken.”
Across the board, lenders and consumers have come out swinging over the regulatory proposals.
Santander UK skipped its third quarter results on October 29 after warning of “uncertainty” in the FCA’s redress scheme.
Spain’s biggest lender took aim at the City watchdog as it warned of “potential implications” due to the redress scheme differing in “important respects from the Supreme Court’s ruling”.
Meanwhile, Charlie Nunn, the Lloyds’ chief executive, said: “When you look at the implication of what’s been proposed by the FCA, it’s going to potentially take 20 years of profitability off the car finance industry.”
On the flip side, the All-Party Parliamentary Group (APPG) on Fair Banking blasted the City watchdog for a “£4.4bn gap” in the proposed scheme. The group accused the regulator of being “influenced by the profit margins of the lenders”.
The full details of the FCA’s motor finance redress scheme are expected to be published in the first quarter of 2026.