The City watchdog has lifted the cap on motor finance complaints following the landmark ruling from the Supreme Court over the summer.
The Financial Conduct Authority said it would ditch the pause on complaints from 31 May 2026 – two months ahead of plan.
In a letter sent to banking bosses, the FCA has also said firms would have to retain and preserve relevant records until 11 April 2031 to support the transparency of the scheme.
“We have been clear that complaints cannot be paused indefinitely,” Sheree Howard, the regulator’s executive director of authorisations, wrote in the letter.
Howard added: “The pause should not be interpreted as a reason to delay work unnecessarily”.
The pause has been in place since January 2024, when complaints volumes rocketed as concerns around the use of discretionary commission arrangements – ‘secret’ deals between car brokers and banks – emerged.
The concerns led to a review by the regulator, with the saga since having scaled to the Supreme Court after a controversial Court of Appeal ruling put lenders on the hook for up to £40bn.
In August, the UK’s top court handing down its ruling on the car mis-selling scandal and provided legal clarity for lenders and regulators.
Motor finance row revs up
The FCA has continued to face criticism for its handling of its industry-wide motor finance redress, which has been accused of straying from the Supreme Court’s ruling.
Last month, the FCA said it would push back the deadline – initially scheduled for 18 November – to 12 December at 5:00pm.
Lloyds Banking Group – which owns the UK’s largest car finance provider Black Horse – was forced to hike provisions to £2bn from £1.2bn after details of the scheme emerged in October.
While FTSE 250 lender Close Brothers near-doubled its funds set aside to £300m and Barclays almost quadrupled its provisions to £325m.
Santander UK pulled the plug on its third-quarter results in October, citing uncertainty in the motor finance sector, as bank chief Mike Regnier called for the government to consider stepping in to help mediate.
He warned if the government does not intervene “the unintended consequences for the car finance market, the supply of credit and the resulting negative impact on the automotive industry and its supply chain could significantly impact jobs, growth and the broader UK economy.”
A key area of contention concerns the assessment of “unfair” – the criteria the Supreme Court upheld in one claimant’s case against lenders.
The top Court ruled in favour of one of three claimants after finding their outsize commission of 55 per cent was “unfair”.
However, the FCA has said the threshold for its redress – where 14.2m agreements are estimated to be eligible – will be 35 per cent.
There has also been equal backlash on the consumer front, with the All-Party Parliamentary Group (APPG) on Fair Banking blasting the City watchdog for a “£4.4bn gap” in the proposed scheme.
The group accused the regulator of being “influenced by the profit margins of the lenders”.
The FCA said: “It’s important we receive as much evidence as possible on specific concerns through the consultation as well as alternative suggestions if respondents don’t agree with our proposals.
“We’ll consider all the evidence and ideas received before taking final decisions.”