Big bills for compensation are likely following the conclusion of the Financial Conduct Authority’s (FCA) review of historical motor finance commission arrangements, which is expected to complete in the third quarter of this year.

The FCA is believed to be looking back over 15 years of deals, with Sheldon Mills, the regulator’s executive director, consumers and competition, stating that 75% of the loan agreements between 2007 and 2021 had some form of discretionary commission.

Initial estimates from analysts at Numis suggested the overall bill for redress could be in the region of £10 billion, with other estimates from Jeffries pushing the total towards £13 billion. Most recently, given the longer timespan under scrutiny, Martin Lewis, founder of, has predicted compensation payments could match the £40 billion paid out following the PPI mis-selling scandal.

Shares in Lloyds Bank fell 10% immediately following the FCA’s announcement and analysts predict a £1.8 billion hit for the bank, which owns Black Horse, the largest motor finance lender.

Close Brothers saw shares drop 22% and is estimated to be on the hook for around £120 million of compensation.

Ten lenders have so far been issued with S166 notices, indicating that the FCA intends to extend its investigation to their motor finance loans.

And the volume of complaints is likely to rise sharply, given the media interest in the FCA investigation, the involvement of claims management companies, and the moves to encourage group actions.

Consumer advocate Doug Taylor has teamed up with litigation specialists Scott+Scott to launch a class action relating to motor finance deals made by Black Horse, Santander Consumer UK and MotoNovo Finance over the period 1 October 2015 to 27 January 2021. The group’s website suggests one million consumers could be in line for £900 million of compensation.

More to come

It was the Financial Ombudsman Service (FOS) flagging up over 10,000 complaints received about discretionary commission which prompted the FCA to act.

FOS’s latest analysis of its activities shows that complaints relating to vehicle issues now make up 25% of all cases for the second quarter of the financial year, July to September 2023/24 – which was before the publicity about the FCA’s investigation.

The FCA has put a pause on the eight-week deadline for providers to provide a final response to complaints while it carries out its investigation. This applies to complaints about motor finance agreements where there was a discretionary commission arrangement between the lender and the broker and will last for 37 weeks provided that the complaint was received by firms on or after 17 November 2023 and on or before 25 September 2024.

Consumers are also being given longer to refer a commission-related complaint to the FOS, with the referral window extended from six to 15 months. This temporary rule applies to complaints where the firm had sent a final response in the period beginning with 12 July 2023 and ending with 10 January 2024, or where the firm sends a final response during the period beginning with 11 January 2024 and ending with 20 November 2024.

As a result, the number of claims around commission disclosure are set to soar, sending the projected costs of settling successful challenges rocketing upwards.

“In the short term, motor finance providers need to implement processes to handle these large volumes of complaints, plus make provision for any compensation. In the longer term, the impact of the FCA’s investigation will spark major change in the sector, and lenders, dealers and brokers need to prepare for a battle to make the emerging relationship with the regulators work better,” Edward Peck, CEO of Asset Finance Connect, maintained.

Asset Finance Connect will be reporting on this topic more fully in the coming days and weeks.

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