Motor finance commission: key considerations to prepare for remediation exercises

13 May 2025

Following the recent FCA announcement on the potential outcome of its Motor Finance review, the new implications arising from the Court of Appeal judgment and insights from past remediation exercises, motor finance lenders should proactively consider the necessary steps to prepare to address concerns raised in the FCA’s review of discretionary commission arrangements and any further developments stemming from the upcoming Supreme Court decision.

Since 2017, the Financial Conduct Authority (FCA) has scrutinised the motor finance sector to identify potential risks that could lead to consumer harm.This review encompassed various areas, including point-of-sale interactions, affordability assessments, and commission disclosures. Through this investigation, the FCA determined that certain commission structures—specifically, discretionary commission arrangements (DCA)— “may be leading to consumer harm on a potentially significant scale”[1]. Consequently, these arrangements were banned effective 28 January 2021.

Following this ban, motor finance lenders experienced a sharp increase in complaints and Data Subject Access Requests (DSARs), particularly after the public announcement on 11 January 2024[2] regarding two Financial Ombudsman Service (FOS) test cases, which garnered widespread attention, including coverage on the Martin Lewis Money Show. However, the most significant development came on 25 October 2024, when the Court of Appeal[3] issued a landmark judgment that prompted some firms to temporarily halt lending while they adjusted their commission disclosure practices.

The ruling found that, in three separate cases, customers were either unaware that the lender paid commission to the dealer or did not receive sufficient information regarding the commission’s existence and amount. Additionally, the judgment highlighted the absence of informed consent from customers for these commission payments.

In response to the Court of Appeal ruling, the lenders appealed to the Supreme Court, where hearings were held from April 1 to April 3[4]. A final decision is anticipated in July.

Meanwhile, on 17 December 2024, the High Court ruled in favour of the FOS in a judicial review brought by Barclays. The FCA also contributed to the case, supporting the FOS position and indicating that both the former Office of Fair Trading (OFT) guidelines (pre-April 2014) and FCA rules (post-April 2014) maintained similar principles. This suggests the FCA may leverage these regulatory standards to establish that redress could be necessary for consumers affected by discretionary commission arrangements.

On 11 March, the FCA announced its intent to issue a formal statement six weeks after the Supreme Court ruling.

What key considerations should firms take into account to make informed decisions and strategically plan for an effective and seamless potential redress project?

We recognise that motor finance lenders are at varying stages in this journey—whether through participation in skilled person reviews and FCA requests, assessing potential financial exposures, addressing complaints or court cases, or initiating plans for a possible remediation exercise.

The following key considerations can serve as a guide to facilitate informed decision-making and strategic planning for an effective and seamless potential redress project. Given their interconnected nature, these decisions should be evaluated holistically to achieve the best possible outcomes.

Automation: Establishing a strong foundation is essential, which includes identifying the most effective ways to automate key activities while minimising manual interventions. In these types of engagements, higher levels of automation lead to more cost-effective and accurate customer outcomes, especially given the expectation of low average compensation amounts. Automation should be integrated across critical areas such as redress calculation, communication, settlement, and case and project management.
Data collection and data quality: A successful remediation process depends on identifying all necessary data points upfront to minimise the need for later adjustments. A critical aspect of data collection is considering what an appropriate redress methodology would be and determining the specific data required. For example, would information from dealers, such as car values, be necessary? Should the data be segmented between new and used vehicles or different dealer types? Allowing sufficient time for data quality testing is essential to detect and address potential limitations, gaps, or issues early. If any concerns arise, a well-structured data strategy should be implemented to resolve them efficiently, prioritising fixes based on their importance and the stage at which the data will be needed in the remediation process.
Flexible and scalable database: A central database should be developed to securely store all essential data while enabling seamless updates as new information becomes available, whether through corrections or additions from external sources. It must also be designed to incorporate future data points, such as new cash flows under the redress methodology, redress amounts, communication records, and settlement dates. Additionally, the database should facilitate efficient redress calculations, ensuring a streamlined and accurate process.
Redress calculation tool: The tool should be designed to facilitate both individual customer redress calculations and financial exposure estimations. It must be adaptable to various scenarios while clearly identifying any limitations. Where limitations arise, a structured strategy should be implemented to address them—this may involve some manual intervention, supported by robust controls to ensure accuracy and consistency.
Communication and Consumer Duty: A well-structured communication strategy should be established to effectively manage both customer outreach regarding potential redress and other key internal and external communications. For customer communication, it is crucial to align with Consumer Duty requirements when shaping the format and content to enhance consumer understanding. This includes clearly explaining redress determination and calculations in a simple, accessible manner for the average customer. For internal and external communications, identifying key stakeholders and assessing their specific information needs is essential. This process should also integrate seamlessly with data collection and database management to maintain consistency and accuracy across all communications.
Settlement: Redress payments to customers should be fully automated to the extent possible, eliminating the need for manual input. This ensures a seamless and accurate process while reducing the risk of errors. Additionally, robust validation checks should be implemented to confirm that payments have been successfully processed and allocated to the correct recipients.
Governance and project management: Effective governance is the foundation of a successful remediation project. Establishing the right governance framework will provide the necessary senior-level oversight and support, enabling timely and informed decision-making of key strategies, approaches and judgements. Additionally, it will facilitate seamless communication between the firm and key external stakeholders, including the FCA, FLA, and other relevant bodies. A strong project management team, robust management information (MI), and clear reporting are essential to ensuring the smooth and efficient execution of the remediation exercise.
Regulatory strategy: The firm should establish a robust and effective regulatory strategy to ensure it can effectively present its position to the FCA when necessary and remain at the forefront of key considerations and deliberations. This approach will also enable the firm to highlight areas requiring further analysis when implementing and executing a potential redress methodology. Given that no single methodology can account for all possible scenarios, maintaining open and constructive dialogue with the FCA will be crucial. A well-structured regulatory strategy will also play a vital role in fostering trust and strengthening the firm’s relationship with the FCA.
Assurance: In its 11 March statement, the FCA outlined plans to implement checks to ensure that firms are executing decisions appropriately. To meet regulatory requirements, firms should consider engaging independent parties with the necessary expertise and industry knowledge to review key aspects of their remediation exercise. This approach will not only help ensure compliance but also support more effective interactions with the FCA. Additionally, it may influence the scope of FCA reviews by demonstrating that the firm has properly implemented and executed the required redress methodology and customer engagement strategy.

Get in touch with our experts

Our expertise in the motor finance sector spans multiple areas, supporting firms across the industry. We understand the complexities involved in these types of issues and offer a comprehensive range of support, tailored to a firm’s specific needs and its position in the redress journey.