A closer look at the grey areas and what they mean for lenders, consumer advisers, and the legal community by Craig Leigh, Barrister & Managing Director of 8PP.
Introduction: The scale and ambition of the FCA’s proposals
The Financial Conduct Authority’s Consultation Paper CP25/27 represents one of the most ambitious redress exercises ever considered by a UK regulator.
Spanning more than 350 pages, it sets out the framework for a Motor Finance Consumer Redress Scheme that could potentially cover up to 14 million historic agreements and cost the industry billions of pounds.
The FCA’s objective is clear: to deliver a consistent, industry-wide remedy for consumers affected by discretionary or high-commission motor-finance arrangements.
Yet, beneath that clarity of purpose lies a complex web of legal, procedural, and evidential uncertainties.
For law firms, lenders, and the barristers who advise them, understanding these grey areas will be key to navigating the months ahead.
- Defining “High Commission”: Where does the line fall?
While the FCA’s paper is extensive, it stops short of offering a definitive threshold for what constitutes a “high” or “unfair” commission. Instead, it references proportionality tests – for example, commissions exceeding 35% of the total cost of credit or 10% of the advance – as possible indicators of unfairness.
However, these figures are not fixed. The FCA acknowledges that data quality and availability vary significantly between firms, which raises questions about consistency and evidential burden.
Should “high” be defined relative to the market at the time, or by reference to an absolute numerical benchmark?
The answer will shape the scope of redress – and the likely exposure for both mainstream and non-prime lenders.
- Data gaps and evidential challenges
The consultation paper concedes that lenders may no longer retain complete datasets for older agreements.
This creates a tension between regulatory fairness and practical enforceability: how should firms compensate customers where data is incomplete, and what level of approximation will the FCA tolerate?
The FCA proposes an average-loss methodology, effectively a “broad brush” approach to quantifying redress in the absence of precise data. While this may speed up compensation, it risks over- or under-compensating consumers – a potential flashpoint for both litigation and judicial review if the scheme is implemented unevenly.
For barristers advising either side, the key issue will be evidential sufficiency: whether reliance on statistical averages can lawfully substitute for individual causation and quantum analysis.
- Opt-in, Opt-out and consumer protection
The proposed opt-in/opt-out structure is one of the most consequential design features.
Under the current proposals:
- Consumers who complained before the scheme starts will be automatically included unless they opt out within three months of notification
- Consumers who have not complained will be invited to opt in within six months of the scheme start date
- Consumers not contacted directly may request a review within one year of the scheme’s commencement.
While administratively logical, this system introduces potential fairness concerns.
An opt-out model assumes consumer awareness – yet the FCA’s reliance on lender contact and advertising may leave some groups under-represented.
Equally, once a consumer opts out, they cannot later opt back in – a decision that could have significant financial implications if made without full advice.
From a legal standpoint, advisers should consider how the scheme’s final rules will interact with limitation periods under the Consumer Credit Act 1974 and with the FOS time limits for historical complaints.
- The relationship between the Scheme, litigation, and the Courts
The FCA has made clear that the proposed redress framework will sit alongside, not replace, the existing court and Financial Ombudsman Service (FOS) routes.
However, the interplay between these systems raises practical and procedural questions for both firms and advisers:
Under the consultation proposals:
- Complaints already received by the FOS will be resolved by the FOS outside of the scheme
- Complaints that have been rejected by lenders but not taken to the FOS will require lenders to contact the customer and invite them to opt in to the scheme once it begins
- Any claims that have been issued via the courts and determined will be excluded from the scheme.
As for the position of consumers who are offered redress under the scheme, acceptance of an offer of redress would be in full and final settlement.
This means a consumer faced with an offer of redress will have to either accept it – and therefore will not be able to litigate in court – or opt out/decline the offer and pursue their claim through the courts instead.
- Proportionality, fairness, and the burden on firms
The FCA’s commitment to fairness must be balanced against operational feasibility.
For large lenders, identifying, reviewing, and compensating millions of agreements will require extensive resources and system changes.
For smaller and non-prime lenders, the cost of compliance could be disproportionate, potentially threatening viability.
There is also the question of who ultimately bears the cost: lenders, brokers, or upstream funders?
The consultation leaves this open, noting only that responsibility will “generally rest with the firm that advanced the credit”.
This could trigger contractual disputes between lenders and intermediaries – a likely area of instruction for specialist barristers once the rules are finalised.
- The role of advisers and the Bar
The consultation period provides an opportunity for law firms and chambers to contribute to the FCA’s understanding of how the scheme will operate in practice.
Barristers can add value by:
- Assisting law firms and lenders in drafting consultation responses
- Advising on regulatory compliance and exposure
- Representing clients in any test cases or judicial review challenges that may arise
- Guiding consumer-side solicitors on eligibility and strategic engagement with the scheme.
Given the overlapping legal and procedural dimensions, this is an area where specialist financial services counsel will be in high demand.
Conclusion: What to watch in 2026
The FCA’s consultation remains open until 18 November 2025, with final rules expected in early 2026. Between now and then, stakeholders should monitor developments closely – particularly around:
- The final definition of “high commission” and methodology for redress
- Confirmation of opt-in/opt-out procedures and longstop dates
- Clarification of how ongoing litigation and FOS cases will be managed
- The balance between fairness to consumers and proportionality for firms.
The proposed scheme is a landmark regulatory initiative, but one that still raises as many questions as it answers.
For practitioners across the financial, consumer, and legal sectors, 2026 will be a defining year for how the UK manages large-scale financial redress.
Next steps for law firms and clients
- Monitor FCA updates and prepare to submit structured feedback before the consultation deadline
- Review historical finance arrangements to assess potential exposure or client eligibility
- Engage early with counsel to understand the litigation and compliance implications of the evolving redress landscape
- Follow 8PP’s updates as we continue to analyse the FCA’s final position and its likely impact across the motor-finance and consumer-credit sectors.
Stay ahead of the FCA’s next steps
8PP will continue to monitor CP25/27 and its implications for ongoing and future claims.
For tailored advice or commentary on how the scheme may affect your clients, contact our clerking team via clerks@8PP.co.uk or call 0151 245 9292 or visit www.8pp.co.uk.
