Motor finance providers are intensifying efforts to curtail the Financial Conduct Authority’s proposed £11 billion compensation scheme, warning that its current scope could significantly undermine sector profitability and reduce consumer credit availability.

The scheme, which spans agreements from 2007 to 2025, targets discretionary commission arrangements where consumers were unaware that dealers received payments for arranging finance.

Approximately 14 million customers may be eligible for redress, with average payouts estimated at £700, under the existing FCA arrangements.

Lenders are urging the government to exclude pre-2014 agreements from the scheme, arguing that the FCA lacks the legislative authority to enforce redress for the period prior to assuming oversight of consumer credit.

Sources cited by The Sunday Times suggest that secondary legislation would be required, and that Chancellor Rachel Reeves could intervene by withholding support.

The FCA disputes this interpretation, stating: “We are satisfied we have the powers to implement the scheme we are consulting on.” It added that complaints dating back to 2007 have been paused “under our powers, for nearly two years” and must now be resolved “fairly, one way or another.”

The financial impact is already being felt. Lloyds Banking Group Chief Executive Charlie Nunn told a House of Lords committee that the scheme would “take away 20 years of profitability off the car finance industry,” according to The Sunday Times.

South Africa’s FirstRand, owner of Aldermore Bank, said on Thursday it may increase its provision for UK motor finance compensation, citing the FCA’s proposed methodology and the potential inclusion of more pre-2021 agreements. In September, the group made a ZAR2.7 billion pre-tax provision, following ZAR3.0 billion the previous year.

Industry concerns also include the scheme’s structure, which would award compensation to any customer whose finance provider used discretionary commission, regardless of demonstrable harm.

FirstRand warned the scheme “would be negative for the broader UK economy given the high likelihood of a contraction in the supply of credit to consumers.”

In response to lobbying, the FCA has extended its consultation deadline from 18 November to 12 December.

The Treasury stated: “The independent Financial Conduct Authority has set out its consultation and it’s vital that all stakeholders take part. We want to see this issue resolved in an efficient and orderly way that provides certainty for consumers and firms.”