The Finance & Leasing Association (FLA) has urged the Financial Conduct Authority to rethink parts of its proposed compensation scheme for drivers affected by mis‑sold car finance [1], saying the current plan could be too broad and may not deliver fair outcomes. The FLA, which represents a large portion of the UK’s motor finance industry, submitted its response to the FCA’s redress consultation last week and highlighted key concerns about how compensation would be paid and who should qualify.

The FCA launched its consultation to address disputes stemming from the car finance scandal [2], particularly where borrowers were not given clear information about commission arrangements in their agreements. A significant number of the car finance claims received so far relate to personal contract purchase agreements, often called PCP claims. These deals were widely used between 2007 and 2024, but many drivers did not realise their broker or dealership might earn more by arranging finance with higher interest rates.

As more people have come forward with questions about their agreements, the number of car finance claims has grown. The FCA’s redress scheme is intended to ensure that drivers who were genuinely disadvantaged receive compensation. But the FLA believes parts of the draft plan could benefit people who did not suffer financial harm.

Focus Compensation Where Harm Was Proven

The FLA has argued that compensation should be reserved for drivers who can show they experienced a real financial loss because of mis‑sold car finance. The association warned that paying out too widely could dilute the purpose of the scheme and make it harder to concentrate resources on people who were clearly affected.

Industry representatives explained that a more targeted approach would help ensure that drivers with genuine claims are prioritised, while also making the scheme more manageable for lenders who will be responsible for paying redress. They said this would help protect both customers and the wider market.

Concerns About Contacting All Past Customers

Another area of concern for the FLA is a proposal that would require lenders to contact all past customers whose agreements might be covered by the redress scheme, even if they are not likely to be owed compensation. The association described this as an excessive requirement that could divert time and money away from addressing legitimate car finance claims.

Many of the finance agreements now being reviewed are more than a decade old, and lenders say it could be difficult and costly to track down people who may not have experienced any harm as a result of their agreement.

Access to Credit Could Be Affected

The FLA has also warned that if the cost of the compensation scheme becomes too high, it could have knock‑on effects on the availability of motor finance in future. Some lenders may become more cautious about offering credit if they have to set aside large sums for potential redress payments, industry representatives say.

This could make it harder for drivers, especially those with limited options, to secure affordable car finance. The association has urged the FCA to design its redress scheme in a way that protects the long‑term health of the car finance market as well as the interests of consumers.

Suggestions for a Balanced Redress Scheme

In its response, the FLA offered a set of recommendations aimed at making the compensation process more balanced and practical. These include clearer definitions of what counts as mis‑sold car finance and a framework that focuses on cases where financial harm is evident.

The association has also asked whether lenders should be required to contact every past customer, even those unlikely to be entitled to compensation. It says such an approach would waste time and money that could be spent helping people with real claims. By using existing data better and making claims simpler, the FLA believes cases would be resolved faster and drivers would not be waiting around unnecessarily.

What Happens Next

The FCA now has all the feedback it received and is due to publish its final decision by the first half of 2026 [3]. That document will detail how the redress scheme works, including who can make a claim on car finance and what evidence will be required.

For drivers considering whether they might have been mis‑sold car finance, now is a good time to review past agreements. While PCP claims make up much of the current caseload, other types of car finance agreements could also qualify if undisclosed commission arrangements influenced the terms.

The potential scale of the motor finance redress scheme has drawn comparisons with the long‑running payment protection insurance compensation programme, which eventually delivered more than £38 billion in payouts. It remains unclear whether the car finance scheme will reach similar levels, but its impact on both consumers and lenders is already shaping up to be significant.

Balancing Fairness and Practical Delivery

The FCA is now finalising its approach but must balance fairness for drivers hit by the car finance scandal with the need to ensure the redress system is fair to lenders and sustainable in the long term.

With billions of pounds potentially at stake, the decisions the regulator makes in 2026 will be watched closely by drivers across the UK, consumer groups and the motor finance industry. Many are awaiting clarity on how the scheme will address the legacy of mis‑sold car finance and offer resolution after years of uncertainty.

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References:

1. The Finance & Leasing Association (FLA) has urged the Financial Conduct Authority to rethink parts of its proposed compensation scheme for drivers affected by mis‑sold car finance - https://www.insurancebusinessmag.com/uk/news/auto-motor/fla-urges-targeted-approach-for-fca-section-404-motor-finance-redress-scheme-560551.aspx
2. The FCA launched its consultation to address disputes stemming from the car finance scandal - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme
3. The FCA now has all the feedback it received and is due to publish its final decision by the first half of 2026 - https://www.fca.org.uk/news/statements/motor-finance-compensation-scheme-consultation-progress-and-timing