FCA Accused of Favouring Lenders in Motor Finance Redress Scheme

A consumer rights group has accused the UK's Financial Conduct Authority (FCA) of prioritizing lenders over consumers in its £9.1 billion motor finance compensation scheme.

The FCA's plan would compensate drivers who were mis-sold a car loan between 2007 and 2024, with an estimated 12.1 million agreements eligible for redress at an average payout of £829 each.

However, Consumer Voice claims that the FCA's decision to set the minimum compensatory interest rate at 3% will short-change consumers. This rate is based on the annual average Bank of England base rate plus 1%, and the group argues that it knowingly sets the floor below the actual borrowing costs of most consumers.

The FCA's decision was driven by a desire to limit the financial strain to lenders, simplify the scheme, and reach a final decision quickly. The watchdog rejected an alternative rate of 8% on the Bank's base rate, which would have directly addressed consumer concerns but would have significantly increased total redress costs for firms.

Consumer Voice argues that the FCA's own data shows that unsecured personal loan rates exceeded 3% for almost the entire scheme period, and many consumers, particularly those with weaker credit profiles, would have borrowed at materially higher rates.