The Finance & Leasing Association (FLA) has responded to the UK Financial Conduct Authority’s (FCA) consultation on the Section 404 motor finance redress scheme.
Announced in October, the FCA’s proposal would allow for compensation payments related to an estimated 14 million motor finance agreements identified as unfair.
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These payments could begin as soon as next year.
While FLA-affiliated lenders support a credible redress process for affected customers, concerns remain that the current proposal does not meet the FCA’s own standards.
The association is calling for adjustments so that the scheme only identifies and compensates consumers “who have actually suffered loss”, helps protect access to credit in the long term, avoids granting compensation when no unfair relationship occurred, and can be delivered within a practical timeframe.
The FLA points out that a “credible” Section 404 FSMA redress programme should uphold fairness for both borrowers and lenders.
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By GlobalDataIn its view, the FCA’s current approach could result in compensation being given to many who did not experience harm or loss. This could redirect resources from those genuinely entitled to redress.
FLA CEO Shanika Amarasekara said: “Our submission is the product of extensive analysis by industry practitioners, economists and leading experts from across the motor finance market.
“The most important point is simple: a redress scheme must provide redress to those who have suffered loss as a result of an unfair credit relationship. Where we differ from the FCA’s proposals, it is because the evidence shows there are fairer, more targeted and more efficient ways to achieve that outcome.
“All eyes are now on the regulator and the industry. The best result is one where we work together to deliver redress swiftly to those who need it, protect consumers’ future access to finance, and create a scheme that is workable and credible for all.”
In its submission, the FLA proposes alternative methods for assessing liability and consumer loss and offers suggestions aimed at making implementation manageable.
Earlier FLA data indicated a 3% increase in the volume of new consumer car finance business in October 2025 compared to the same month in 2024.
