CP25/27: Motor finance consumer redress scheme

We received questions from consumer groups and several firms about the role of the Financial Ombudsman and how its case fee will work for motor finance scheme cases - both for future and existing complaints.  

For complaints referred to the Financial Ombudsman following the launch of the scheme which are within its scope, the Financial Ombudsman will be required to consider complaints against what, in its opinion, the outcome should be according to the rules of the scheme. It could only overturn the outcome of the complaint where it found the lender had not met the rules of the scheme. This also applies if a consumer who complained prior to the scheme starting decides to opt out of the scheme.

We discuss the role of the Financial Ombudsman in paragraphs 5.19 to 5.23 of the Consultation Paper. Paragraph 5.21 of CP25/27 confirms that we are engaging with the Financial Ombudsman on how complaints within the scope of the proposed scheme will be handled, including the cost of the case fee.

Complaints which have been referred to the Financial Ombudsman prior to the start of the scheme, or in relation to cases which do not fall to be dealt with under the scheme, will be assessed against what the Financial Ombudsman believes is fair and reasonable in all the circumstances of the case.

Further detail will be provided in our final policy statement.   

Some consumer groups have queried how prescriptive the format and content of firms’ letters to consumers will be, to ensure consumers are supported to make informed decisions and protected from fraud and scams.  

We recognise this is an important area for consideration. We have set out in CP25/27 Chapters 5, 6 and 9, and draft instrument (CP25/27 Appendix 1) the key letters that firms will be required to send and the key content we expect them to include. These requirements are designed to ensure consistent, clear and accurate information to consumers about the outcome of their case and any redress owed.

We will draw on our experience from the Arch Cru and British Steel Pension Scheme redress schemes to inform how key messages are delivered to consumers. We invited feedback on the proposed content of the letters and our approach. We want to ensure they are workable in practice and support consumer understanding across the wide range of firms, whilst also seeking to mitigate the risk of fraudsters exploiting the scheme by posing to consumers as their lender.

We will run an awareness campaign alongside the scheme to help consumers understand the redress process and what communications to expect from their lender.  

Some consumer groups have also asked if we'd consider publishing lender contact information on our website so that it is clear who consumers need to go to if they intend to complain or, once the scheme has launched, they are concerned that they have not heard from their lender. Including such information on our website may also reduce the risk of fraudsters setting up sites that impersonate lenders’ websites or purport to contact lenders on behalf of consumers. We are considering this suggestion and would welcome any further feedback from interested stakeholders.

Some lenders and professional representatives have requested clarification on whether they should communicate with professional representatives as well as consumers, regarding cases in scope of the proposed scheme.

We have not proposed requiring firms to approach communications to professional representatives in a different way for scheme cases. Firms should continue to communicate with consumers or their professional representatives in the usual way, with consideration given to the contractual agreements in place between consumers and their representatives. We will consider whether we need to provide further clarification in our policy statement.  

We set out in CP25/27 Chapter 10 and our letter to FCA-regulated CMCs (PDF)[14] that we expect CMCs and respondent firms to co-operate to ensure an efficient and cost-effective process for both sides.  

We’ve received reports of consumers engaging more than one representative without fully understanding the implications. If informed that a customer is already represented, professional representatives should promptly engage with the customer and cease acting if that is the customer’s instruction. Firms must explain the situation clearly and liaise with the other representative(s) where needed, to minimise inconvenience.

We are also engaging closely with the Solicitors Regulation Authority in relation to scenarios of multiple representation.

Some firms have queried whether they may be liable to pay redress in cases where customers received 0% APR deals.

We’ve proposed (para 7.43) that lenders can rebut the presumption of an unfair relationship caused by inadequate disclosure of a DCA if there is evidence that the broker selected the lowest interest rate at which they were not making discretionary commission under the DCA. This will include where the APR was 0%.

We’ve also proposed (paras 7.54 to 7.60) that the presumption of loss or damage caused by an unfair relationship arising from inadequate disclosure of a high commission arrangement or a tied arrangement could be rebutted if the lender can provide clear, contemporaneous, and customer-specific evidence that the consumer would not have secured a lower APR from any other lender the broker had arrangements with at the time of the transaction. This may include where the APR was 0%.  

If the presumption of loss or damage is successfully rebutted, the lender may determine that there was an unfair relationship due to inadequate disclosure, but no redress is due. This approach aims to ensure openness and transparency with consumers regarding commission arrangements in their agreements, even if no loss occurred.

We welcomed feedback on our definition of scheme cases, the factors indicating an unfair relationship and the presumptions and circumstances in which a firm can rebut those presumptions.

The redress scheme covers agreements with deceased consumers. Our draft rules include a requirement for lenders to take reasonable steps to communicate with the representatives or beneficiaries of a consumer’s estate, where the lender becomes aware the consumer is deceased.

Liability assessment under the scheme requires firms to determine whether, in a scheme case, there was an unfair relationship because of a failure to adequately disclose a relevant arrangement, and, if so, whether that unfair relationship resulted in loss or damage to consumers (which, as we set out in chapter 3 of our consultation paper, could arise because they lose the opportunity to negotiate lower borrowing costs or seek alternative arrangements).

Missed payments or irregularities may, however, be relevant to the APR adjustment remedy calculation. Where historic cashflow data is available, the redress calculation would involve reconstructing the schedule of actual payments. This approach would capture, for example, missed or partial payments, payment holidays, and fees. This would not, however, be possible where historic cashflow data was unavailable and firms would have to construct a modelled schedule based on prescribed assumptions.

We proposed lenders would be entitled to subtract from the commission repayment remedy and APR adjustment remedy any undisputed arrears or default sums owed by the consumer to the lender in relation to any motor finance agreement or any other regulated credit agreement with the lender. Separately, we also proposed that lenders could provide the consumer with the option of offsetting the amount of redress against any outstanding principal under the motor finance agreement where this is relevant.

Our proposals on redress calculation are set out in more detail in chapter 8 of CP25/27.

We chose a physical data room for the following reasons:

1. Enhanced security: A physical environment allows us to maintain control over who can access the data, reducing the risk of unauthorised sharing or digital breaches.  
2. Legal and regulatory compliance: Certain categories of sensitive information require the highest level of protection, which is easier to guarantee in a controlled physical setting.  
3. Minimising cyber risks: Virtual platforms carry inherent cybersecurity risks. A physical room mitigates these risks by removing exposure to online threats.  
4. Controlled environment: We can ensure that documents are viewed under supervision, preventing copying, downloading, or distribution beyond permitted parties.
5. Consistency and fairness: A physical room provides equal access conditions for all parties, avoiding disparities in technology or connectivity that could arise with virtual solutions.

Under our proposed scheme, consumers in this situation who have not taken their complaint to the Financial Ombudsman will have their agreement reviewed by the relevant firm, and they will be contacted within 6 months of the scheme starting.  

However, consumers may wish to complain again to the firm. Under our current proposals, if consumers complain ahead of the introduction of a compensation scheme, their case will be assessed and any compensation paid sooner than if they waited for their lender to write to them.