As highlighted in our previous insight, the Supreme Court’s recent judgment significantly narrowed the scope of car‑finance claims but it did not close the door entirely. Now, the Financial Conduct Authority (FCA) is moving forward with plans for an industry-wide redress scheme. This follow-up insight unpacks the latest developments and explores how legal and practical considerations may shape the eventual implementation of redress.

Legal foundation — why back to 2007?

The FCA currently proposes that the redress scheme should cover motor‑finance agreements dating back to 2007. The regulator maintains that this aligns with the earliest date from which complaints could be taken by the Financial Ombudsman Service (FOS). However, this expansive timeframe sits uncomfortably alongside the six-year limitation period under the Consumer Credit Act (CCA) 1974—a point emphasised by the Supreme Court in Smith v Royal Bank of Scotland [2023], where claims arising from an “unfair relationship” must be brought within six years after the agreement ends.

The House of Lords Financial Services Regulation Committee has formally challenged the FCA on this point. In their recent letter to FCA CEO Nikhil Rathi, the Committee asked the FCA to explain the legal basis for the 2007 cutoff, and to provide evidence of any modelling that evaluates a six-year alternative timeframe. This marks a clear push from Parliament for the FCA to justify its approach before proceeding.

Cost and record‑keeping realities

The expanded timeframe has significant financial and administrative consequences. The FCA’s indicative cost estimate ranges from £9 billion to £18 billion, based on the 2007–present scope. This represents a considerable burden on firms – far beyond what many had previously anticipated.

The Committee also questioned the FCA’s modelling of administration costs, given the potential for “several billion of admin costs” to accompany extensive record retrieval and processing. Firms have already voiced concerns: the Finance & Leasing Association warns that many records “may not be held,” describing them as “patchy at best.”

Principles of the scheme: what the FCA has said

As we await the full consultation, the FCA’s public materials outline several guiding principles:

• Comprehensiveness: a scheme broad enough to preclude the need for court or FOS complaints.
• Fairness: ensuring consumers who lost out receive appropriate redress without overreach.
• Certainty, simplicity, cost‑effectiveness, timeliness, transparency, and market integrity as central tenets.

Furthermore, the FCA has said it expects to confirm within six weeks of the Supreme Court’s ruling whether it will proceed, and if so, issue a consultation by early October 2025, aiming for implementation in 2026.

Market stability vs consumer redress

The FCA defends the wider time scope as promoting orderly resolution of legacy cases, avoiding protracted and piecemeal disputes. Nikhil Rathi’s letter argues that excluding pre‑2007 agreements could prolong uncertainty on motor finance for several more years.

However, the House of Lords Committee warns that excessive regulatory burden risks raising the cost of motor finance, potentially putting it beyond reach for some consumers, undermining the very market integrity the FCA aims to preserve.

What happens next and what firms should do

With the Supreme Court’s ruling in hand, attention turns to whether the FCA will adopt the redress scheme and, critically, to which timeframe. The outlook may include:

• A shorter, six-year scope, to align with CCA limits and address records challenges.
• A broader scheme standing to 2007, with a focus on legal and systemic completeness.

In all cases, firms should prepare now:

• Assess data integrity and retention – particularly records from the last six years—for readiness.
• Map out administration workflows and estimate compliance costs.
• Consider technological solutions to automate redress adjudication and payment – scalable systems are likely to be essential.

Conclusion

The FCA now faces a delicate balancing act: ensuring fairness to consumers and preserving market stability, while staying within legal boundaries and addressing practical limitations. The proposal to reach back to 2007 may offer comprehensiveness – but it raises genuine concerns about feasibility and fairness.

Asserting the six-year CCA limitation may be both legally sounder and more operationally realistic. Either way, clarity lies just ahead: within six weeks of the Supreme Court’s ruling, the FCA will confirm its direction and open public consultation.

For motor finance firms and stakeholders, the time to act is now. Reassess your data, ready yourselves for potential redress obligations, and monitor developments closely, because this redress scheme could become one of the most consequential in the sector’s recent history.