The FCA published its motor finance redress approach yesterday. 12.1 million agreements are in scope, average compensation is estimated at £700 per agreement, and the total industry cost is projected at £11 billion. The scheme is expected to be operational by end of June 2026.
The PPI comparisons are inevitable, but this is different in one important respect. PPI was about mis-selling at the point of sale. Motor finance is about something structural, a business model in which the incentive to earn more was hardwired into the price customers paid, without their knowledge. Discretionary commission arrangements gave brokers the power to set interest rates on PCP and HP agreements. Because brokers earned more on higher rates, customers paid more, not because their risk profile demanded it, but because the commercial model made it profitable to charge them more. The FCA banned DCAs in 2021. Today’s announcement confirms that the legacy of that model, running back nearly two decades, will now be unwound.
The regulatory signal is the more important story
The FCA is demonstrating that it will pursue remediation at scale where business model design, not just individual conduct, caused systemic consumer harm. That is the same logic underpinning Consumer Duty. The fact that most of these agreements predate Consumer Duty’s introduction does not insulate firms from its spirit. Where harm was foreseeable, historic conduct will be assessed against contemporary standards of fairness.
The parallels for capital markets firms are direct. Commission and fee structures that create misalignment between what intermediaries earn and what clients pay or experience, inducement arrangements that influence execution or product selection, and distribution models that obscure conflicts of interest are all live areas of FCA focus. The investment research unbundling debate, payment for order flow, and the ongoing scrutiny of fund distribution economics all reflect the same supervisory instinct: where the commercial model creates a tension between firm revenue and client outcome, the regulator will eventually test whether that tension was managed or ignored. Motor finance is the consumer credit version of a question the FCA is also asking in wholesale markets.
The governance question this raises is uncomfortable, regardless of the sector. The DCA model was not a secret. The incentive misalignment it created was not subtle. The harm to customers was, in retrospect, predictable. Effective conduct risk governance means identifying that kind of structural risk before it crystallises, and being willing to challenge revenue models that produce it, even when they are profitable. Under SMCR, senior managers are accountable for the areas within their responsibilities. Where distribution models create foreseeable consumer harm, that accountability will be tested.
What this means for firms
Motor finance is a backward-looking exercise with forward-looking implications. The questions worth asking now are straightforward: where in your current model do incentive structures create a misalignment between what the firm earns and what clients experience? Can you evidence, at board level, that those structures have been reviewed and challenged? Are you identifying foreseeable harm early enough to address it before it becomes a redress exercise?
The FCA’s direction of travel is consistent. Business models are under scrutiny, not just individual transactions. Motor finance is an example of what happens when structural conflicts of interest go unaddressed. The next intervention may not be about the past, it may be about what firms are doing right now.
This post contains a general summary of advice and is not a complete or definitive statement of the law. Specific advice should be obtained where appropriate.
