The Financial Conduct Authority has recognised significant hurdles facing businesses that may need to participate in a car finance scandal compensation programme.
Nikhil Rathi, who leads the FCA, has assured that the watchdog aims to develop practical and balanced approaches to address these concerns.
The acknowledgement comes as the body prepares to launch consultations on a sector-wide reimbursement initiative.
Industry participants had expressed worries about whether companies and their customers still possess the necessary documentation from historical transactions.
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Drivers are expected to receive compensation next year
| GETTY/PA"We recognise the record keeping challenge for some firms," Rathi stated in correspondence with the House of Lords Financial Services Regulation Committee.
He emphasised that the FCA remains "focused on proportionate and workable solutions to the practical issues that have been raised".
The regulatory body plans to begin its consultation process by the start of October, with compensation payments anticipated to commence during 2026 if the programme proceeds.
The FCA has indicated that typical compensation amounts would fall below £950 for the majority of affected customers.
The car finance scandal could be worth up to £18billion | GETTYThe watchdog's investigation revealed that numerous vehicle lending companies failed to meet regulatory standards by withholding details about dealer commissions from borrowers.
According to the regulator's findings, these businesses breached both regulatory requirements and legal obligations when they neglected to disclose commission arrangements between lenders and automotive retailers.
The proposed framework would establish standardised procedures for lenders to assess eligibility for compensation and calculate appropriate payment amounts in a consistent manner.
The FCA's assessment suggests that processing compensation claims from 2007 to 2014 through individual channels could prove far more expensive than implementing a unified redress system.
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Rathi explained to the parliamentary committee that businesses have already absorbed considerable expenses during the complaints suspension period, with numerous cases progressing through the Financial Ombudsman Service and judicial proceedings.
"Our assessment of costs, including for the administration of any redress scheme, will form part of our consultation," he wrote in his response to the Lords committee.
The regulator anticipates that without a structured programme, potentially millions of claims would require resolution through ombudsman services or courts, creating substantially higher costs and extended timelines.
Rathi stressed the importance of maintaining "clear, consistent messaging for consumers" whilst ensuring all complaints receive swift attention.
The Supreme Court announced its car finance verdict at the start of August | PAThe FCA has maintained extensive dialogue with various market participants since announcing its consultation plans, including financial institutions, intermediaries, industry associations, consumer advocates, claims handlers, credit bureaus and legal advisors.
This engagement process aims to collect preliminary perspectives and feedback to shape the consultation framework, with the formal consultation offering additional opportunities to address implementation challenges.
Regarding market stability, Rathi provided reassurance that the compensation programme should not disrupt lending availability.
The FCA anticipates that multiple existing lenders will maintain their current product offerings and terms throughout the redress process.