Vehicle Finance Redress Scheme seems to be down the road

In what could be the final chapter in the long running (or driving) vehicle finance saga, the FCA has announced that it is likely to consult on a redress scheme following the Supreme Court's anticipated decision in Jonson v FirstRand Bank Limited

Regular readers of these pages will know that we have been following developments in the vehicle finance market for some time. As far back as January 2024, we predicted that there might be an industry wide redress scheme under s.404 of FSMA as a consequence of the volume of complaints made to that point concerning discretionary commission arrangements (being arrangements whereby the broker's commission is linked to the interest charged on a loan (used, in these circumstances, to buy a car)).

2024 saw a number of developments, including published FOS final decisions and a Court of Appeal decision in Johnson v FirstRand Bank Limited upholding complaints and claims against lenders for disclosure failings by finance brokers. One of the FOS final decisions has been subject to an unsuccessful judicial review application (which is currently being appealed) and the Johnson v FirstRand Bank case is proceeding to the Supreme Court. 

Against this backdrop (and with the estimated redress across the board now reaching £40 billion) it seemed increasingly inevitable that our prediction for an industry wide redress scheme may come true, and it has now moved one step closer. On 11 March 2025, the Financial Conduct Authority (FCA) published a statement confirming that it's likely they will consult on an industry wide redress scheme if, taking account of the Supreme Court's decision, they conclude that customers have 'lost out' due to widespread failings. 

The Supreme Court is set to hear the appeal against the Court of Appeal's judgment between 1 and 3 April 2025. The FCA had previously planned to make an announcement in May but has now confirmed that they will confirm whether it will propose a redress scheme and the details for the same within 6 weeks of the Supreme Court decision. This means that the announcement will be dependent on when the Supreme Court publishes its judgment. 

The FCA's publication clearly suggests that, if the Supreme Court does uphold the Court of Appeal's decision, then there will be a redress scheme. Importantly, the FCA indicates that it may be looking at an 'opt-out' model for the redress scheme (an approach we saw taken for the s.404 review of British Steel Pension transfers). The publication states that a redress scheme would be "simpler for consumers than bringing a complaint…", indicating that the FCA may not be considering an opt-in exercise, given that an 'opt-in' is usually categorised as a complaint. 

The FCA believes that this approach will be "more orderly and efficient for firms than a complaint led approach", which further implies that they are envisaging a scheme that does not proceed using the normal 'opt-in' process. 

This could create an issue for the FCA, as coverage arguments could ensue if firms are asked to pay redress in the absence of an 'opt-in,' as there will have been no claim made for the purposes of a claims-made insurance policy in these circumstances. Furthermore, it needs to be kept in mind that, for redress to be payable under a s.404 scheme, consumers must have suffered a loss in respect of which they would be entitled to a remedy if they brought legal proceedings. In practice, this means the usual legal principles of duty, breach, causation and loss must be satisfied before redress is payable.   

We will be keeping a close eye on this and will report further on any new developments, and in particular, the publication of a consultation paper. However, firms must be prepared for the operational challenges and potential financial impact that may arise if the redress scheme moves forward.