CONSULTATION RESPONSE TO CP25/27: MOTOR FINANCE CONSUMER REDRESS SCHEME

Respondent: Allegiant Finance Services Limited (Allegiant)
Date: December 2025

EXECUTIVE SUMMARY

Allegiant Finance Services Limited welcomes the opportunity to respond to CP25/27: Motor Finance Consumer Redress Scheme. As an FCA authorised Claims Management Company with extensive experience representing consumers in financial services disputes, including motor finance commission claims, we are well positioned to comment on the proposed scheme’s likely effectiveness in delivering fair outcomes for affected consumers.

While we support the FCA’s recognition that widespread failures in commission disclosure have caused consumer detriment, we have concerns that certain aspects of the proposed scheme may undermine its stated objectives of comprehensiveness, fairness, and simplicity. In particular, we are concerned that:

1. The scheme’s narrow focus on commission disclosure fails to address the broader cumulative factors that may render credit relationships unfair under section 140A of the Consumer Credit Act 1974. The cumulative factor approach is recognised by the Supreme Court.
2. The proposed rebuttal provisions are excessively broad and risk enabling lenders to exclude consumers who may have legitimate claims.
3. The definition of consumer vulnerability and sophistication lacks sufficient precision, creating scope for inconsistent and potentially unfair outcomes.
4. The treatment of disclosure as a determinative factor overstates its relevance to the statutory unfair relationship test.
5. Consumers who participate in the scheme may be inadvertently prejudiced from pursuing separate unfair relationship complaints based on non-commission factors.

Allegiant believes the FCA’s motor redress scheme is accordingly insufficient, and that this results from the FCA’s historical narrow focus on CONC rules, with the application of a last minute sticking plaster to address Section 140 claims, that is narrowly focused on commission. Whilst Allegiant recognises the consultation paper pays lip service to the multi factorial approach required under Section 140, the reality is, of course, that a redress scheme can never cater for all of the nuances that the test requires consideration of (vehicle quality, appropriateness of underwriting decision, extent of disclosure, ongoing fairness of creditor relationship after inception, etc). This renders the FCA’s decision to launch misguided advertisements that suggests representatives are not needed nothing short of misleading.

PART 1: THE CUMULATIVE NATURE OF SECTION 140A UNFAIR RELATIONSHIP CLAIMS

1.1 Legal Framework

We respectfully submit that the FCA’s proposed scheme, while addressing commission-related unfairness, risks oversimplifying the inherently fact-sensitive and cumulative nature of section 140A unfair relationship claims.

The Supreme Court in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61 established that section 140A is “deliberately framed in wide terms with very little in the way of guidance about the criteria for its application.” Lord Sumption emphasised that “it is not possible to state a precise or universal test for its application, which must depend on the court’s judgment of all the relevant facts.”

Crucially, the Supreme Court identified that “an altogether wider range of considerations may be relevant to the fairness of the relationship” including “the characteristics of the borrower, her sophistication or vulnerability, the facts which she could reasonably be expected to know or assume, the range of choices available to her, and the degree to which the creditor was or should have been aware of these matters.”

1.2 The Cumulative Effect Principle

The Supreme Court’s judgment in Johnson v FirstRand Bank Ltd [2025] UKSC 33 reinforced that the section 140A test permits courts to take into account a very broad range of factors and that it is “highly fact sensitive.” The court emphasised that there is an “overall balancing exercise required” to determine whether there is an unfair relationship, and that the list of relevant factors is “non-exhaustive.”

This cumulative approach is also evident in Kerrigan v Elevate Credit International Ltd [2020], where HHJ Worster found the relationship unfair based on multiple factors, including CONC breaches, excessive interest rates, and patterns of repeat borrowing. The judgment emphasised that while individual factors may be “powerful,” the court must still consider the broad range of factors.

1.3 Concerns Regarding the Scheme’s Limited Scope

We are concerned that by focusing exclusively on commission related factors, the proposed scheme may fail to capture the full range of circumstances that could render a credit relationship unfair. The following is a list of non-exhaustive factors that may contribute to an overall unfair relationship:

1. a) Affordability concerns: Where a lender failed to conduct adequate creditworthiness assessments in accordance with CONC requirements, this may independently render the relationship unfair, warranting a remedy of all interest over the lifetime of the credit (as recognised in Kerrigan).
2. b) Vehicle condition: where a vehicle was not fit for purpose at the time of the credit agreement but this was not disclosed, this may contribute to overall unfairness (supplying a vehicle with an unresolved safety recall is a criminal offence, so would inevitably be a powerful factor in rendering a credit-debtor relationship unfair in law).
3. c) The inherent structure of PCP agreements: Academic research from Cambridge University notes that PCP agreements, while marketed as flexible and affordable, routinely give rise to extended credit dependency without securing vehicle ownership. A study also found that 23% of participants scored no better than chance when responding to basic questions about PCP contracts, despite over half holding university degrees[1]. This structural information / expertise asymmetry may itself be a contributing factor to unfairness.

1.4 Request for Explicit Assurance

We request explicit provision, within the final scheme rules, that consumers who participate in the proposed redress scheme will not be excluded or prevented from subsequently making an unfair relationship complaint to their lender based on factors outside the commission remit.

We acknowledge that there cannot be double recovery for the same issue. However, the following scenario illustrates our concern:

• A consumer participates in the scheme and receives redress based on undisclosed commission.
• The same consumer later identifies that their credit agreement was also unaffordable, constituting a separate basis for unfairness under section 140A, or later discovers a latent defect in their vehicle, that existed at the time of supply.
• The appropriate remedy for unaffordability (removal of all interest over the lifetime of credit) or rejection, likely substantially exceed the commission-based redress proposed by the FCA.
• The consumer should be entitled to pursue the additional claim and receive the difference.

We submit that the scheme rules should expressly preserve consumers’ rights to bring separate unfair relationship claims based on non-commission factors, with any commission-based redress already received being set off against any subsequent award.

PART 2: CONCERNS REGARDING THE REBUTTAL PROVISIONS

2.1 Overview of Proposed Rebuttals

The FCA proposes at paragraph 7.43 that lenders can rebut the presumption of an unfair relationship caused by inadequate disclosure of a DCA if there is evidence that the broker selected the lowest interest rate at which they were not making discretionary commission.

Paragraphs 7.54 to 7.60 further propose that the presumption of loss or damage caused by an unfair relationship arising from inadequate disclosure of a high commission arrangement or tied arrangement could be rebutted if the lender can provide “clear, contemporaneous, and customer-specific evidence” that the consumer would not have secured a lower APR from any other lender the broker had arrangements with.

2.2 Scope for Manipulation and Alignment with Industry Culture

We are deeply concerned that these rebuttal provisions are excessively broad and create substantial scope for lenders to manipulate outcomes in their favour.

The 99% rejection rate is instructive. Prior to regulatory intervention, lenders rejected around 99% of commission complaints they received. This demonstrates an industry-wide alignment against acknowledging any wrongdoing in commission practices. While the redress scheme will necessarily shift this position, the underlying culture of resistance to consumer claims persists. The proposed rebuttal provisions provide multiple avenues for this culture to manifest in scheme outcomes.

Specific concerns include:

1. Information asymmetry: Lenders control the documentary evidence needed to establish rebuttals. Many lenders are weaponising the DSAR process and not providing the information that law firms and CMCS need to properly assess claims.
2. Consumers have no practical means of verifying or challenging assertions about what rates were available from other lenders at the time of the transaction. The asymmetry that caused the original unfairness will be replicated in the rebuttal process.
3. Tied arrangement rebuttals: The proposal that lenders can rebut by showing the consumer would not have secured a better APR from any other lender the broker had arrangements with is particularly problematic. The very existence of an undisclosed tied arrangement meant the consumer was unaware they should shop around. It is fundamentally illogical (and unfair) to then require proof of what the consumer “would have” done in a counterfactual scenario they were deliberately kept ignorant of.
4. Retrospective justification: Lenders have had years since the Court of Appeal judgment (and longer since the issue first emerged) to prepare for this scheme. They may construct retrospective justifications for historic transactions that cannot be meaningfully challenged by consumers or verified by regulators.
5. Sophistication arguments: We anticipate lenders will seek to argue that certain consumers—for example, those who worked in car dealerships, in any financial services role, or who had taken out multiple finance agreements—were “sufficiently sophisticated” to understand commission arrangements. Such arguments should be treated with extreme caution. Working in a car dealership as a salesperson does not equate to understanding the intricacies of lender-broker commission structures.

2.3 Inconsistency with Supreme Court Approach

The Supreme Court in Johnson was clear that

“it is not necessary for [the claimant] to prove that he would not have proceeded with the transaction had he been made aware of the fact and amount of commission.”

Yet the proposed rebuttal framework appears to introduce precisely this kind of causation test through the back door.

We submit that if non disclosure of commission or tied arrangements is established, the presumption of unfairness should be virtually irrebuttable. The scheme should focus on calculating appropriate redress, not on providing lenders with multiple opportunities to avoid liability.

2.4 The Need for Prescriptive Rules

The success of this redress scheme depends on it being genuinely accessible and delivering consistent outcomes. If lenders are permitted broad scope to rebut liability on case-by-case grounds, the scheme risks becoming—in effect—a series of individual complaint investigations rather than a streamlined mass compensation mechanism.

This would defeat the FCA’s stated purposes. Paragraph 1.11 of CP25/27 states that the scheme should “be simpler for consumers than bringing an individual complaint.” If consumers must effectively litigate rebuttal arguments to receive compensation, simplicity is lost. Many consumers may simply give up rather than challenge legal arguments advanced by lenders’ compliance teams.

The scheme risks becoming what it was designed to avoid: If rebuttals are permitted too liberally, dissatisfied consumers will refer matters to the Financial Ombudsman Service or pursue court claims—precisely the scenario the scheme is intended to prevent.

2.5 Recommendation

The rebuttal provisions should be substantially narrowed to apply only in the clearest cases, such as:

• Documentary evidence that full and specific disclosure of commission amount and nature was made and acknowledged by the consumer in a clear, standalone communication (not buried in terms and conditions). And even in this scenario, extreme caution should be exercised: was the disclosure really good enough to remove the unfairness from the relationship?
• The consumer was demonstrably a motor finance industry professional with actual expertise in commission structures (e.g., a senior compliance officer at a motor finance lender)

The scheme should not permit rebuttals based on:

• Speculation based on the absence of paperwork, where the lender has destroyed the same.
• Speculation about what the consumer “would have done”
• Comparisons to hypothetical alternative rates
• General assertions about “sophistication” based on education, income, or employment in certain fields
• The consumer’s employment in any motor trade or financial services role unless directly relevant to commission structures

PART 3: DEFINITION OF VULNERABILITY AND SOPHISTICATION

3.1 The Problem of Vagueness

The consultation paper references consumer vulnerability and sophistication as relevant factors, yet provides insufficient guidance on how these concepts should be defined and applied.

The Supreme Court in Johnson noted that the consumer was “commercially unsophisticated” as one factor supporting a finding of unfairness. However, the consultation paper does not adequately address:

• What constitutes commercial sophistication in the motor finance context
• How vulnerability should be assessed
• What evidence would be required to establish or rebut sophistication/vulnerability

3.2 Risk of Narrow Interpretation

We are concerned that without strict definition, lenders will adopt narrow interpretations of vulnerability that exclude many affected consumers. For example, lenders might argue that any consumer who:

• Held a university degree
• Was employed in any financial services role (regardless of relevance)
• Had previously taken out motor finance
• Had a certain income level

should be treated as “sophisticated” and excluded from redress.

3.3 Academic Evidence on Consumer Understanding

The academic literature strongly supports treating many motor finance consumers as unsophisticated for these purposes:

• McElvaney et al. (2018) found that 23% of participants scored no better than chance on basic PCP comprehension questions, despite over half holding university degrees.
• The study found participants frequently misunderstood what happens at the end of PCP agreements, particularly the balloon payment requirement.
• Many participants wrongly believed that making monthly payments built equity in the vehicle.

This evidence suggests that consumer comprehension of motor finance can be poor across all educational backgrounds. Only consumers with demonstrable, specific expertise in motor finance (such as senior compliance professionals at motor finance lenders) should potentially be treated as sophisticated.

3.4 Recommendation

The scheme should:

• Presume all consumers are unsophisticated unless the lender can demonstrate the consumer had specific, professional expertise in motor finance commission arrangements
• Define vulnerability broadly and consistently with FCA guidance on vulnerable customers
• Not permit sophistication to be inferred from educational qualifications, income levels, or employment in unrelated financial services roles

PART 4: THE RELEVANCE OF DISCLOSURE TO UNFAIR RELATIONSHIPS

4.1 Disclosure Is Not Determinative

The consultation paper places considerable emphasis on disclosure as both the source of unfairness and the basis for potential rebuttals. We submit that this approach overstates the relevance of disclosure to the section 140A unfair relationship test.

Section 140A does not create a disclosure-based cause of action. Rather, it asks whether the relationship as a whole is unfair having regard to all relevant matters. While inadequate disclosure may be one such matter, the Supreme Court has been clear that the test does not require proof of causation it is not necessary to show that better disclosure would have changed the consumer’s decision.

4.2 The Information Asymmetry Problem

The academic literature highlights fundamental problems with disclosure as a consumer protection mechanism in complex financial products:

• Consumers frequently struggle to understand the structure and implications of PCP agreements even when information is technically available
• The power imbalance between dealers and consumers means that disclosure documents are often not read or understood
• Time pressure at the point of sale undermines meaningful consideration of disclosed information

Professor Willis (2008) has argued that financial literacy education and disclosure are fundamentally inadequate to address the structural inequalities in consumer credit markets. Zokaityte (2025) similarly argues that the regulatory focus on transparency and disclosure is “poorly equipped to address the embedded inequalities characteristic of intermediated consumer credit markets.”

4.3 Implications for the Scheme

Given these limitations, we submit that:

1. a) Rebuttals based on “adequate disclosure” should be viewed with considerable scepticism. Even where disclosure technically occurred, it may not have been meaningful in context.
2. b) The scheme should not treat disclosure compliance as a safe harbour. Even adequate disclosure of commission does not necessarily make the relationship fair if other factors (such as the size of commission relative to the loan) indicate otherwise.
3. c) The proposed approach risks importing a causation requirement through the back door. If a lender can avoid liability by showing “adequate” disclosure, this effectively requires proof that inadequate disclosure caused the consumer to act differently—which the Supreme Court has rejected.

PART 5: THE NATURE OF PCP AGREEMENTS

5.1 Structural Concerns

We note that the consultation paper does not address concerns about the fundamental structure of PCP agreements as a potential contributing factor to unfair relationships.

Academic research highlights that:

• PCP agreements are designed to perpetuate credit dependency rather than facilitate ownership
• The balloon payment structure is beyond the financial reach of most consumers
• Over 75% of PCP customers do not pay the balloon payment and instead roll into new agreements
• This creates a never-ending cycle of indebtedness that primarily benefits dealers and lenders

5.2 The Dealer Incentive Problem

Car dealerships push PCP products on the basis that they have lower monthly repayments than Hire Purchase agreements. However, this framing is fundamentally disingenuous when the consumer’s objective is to own the vehicle:

• The ownership question: If a consumer genuinely had no interest in owning the vehicle at the end of the agreement, they would logically enter a leasing arrangement. The prevalence of PCP over leasing suggests consumers do expect to own, yet the structure makes this financially unrealistic.
• The balloon payment barrier: Industry data indicates that over 75% of PCP customers do not pay the balloon payment. This is not a matter of consumer choice but of financial incapacity. The balloon payment is deliberately set at a level most consumers cannot afford.
• The perpetual debt cycle: Consumers who cannot afford the balloon payment are channelled into “upgrading” to a new PCP agreement, using any equity in the current vehicle as a deposit. This creates a never-ending cycle of indebtedness where consumers pay continuously but never own an asset.
• Asymmetric benefits: The PCP structure strongly favours dealerships and lenders by promoting faster vehicle replacement cycles, ensuring predictable return business (the customer will return in 3-4 years), and maintaining consumers in a permanent debtor relationship.

5.3 Relevance to Unfair Relationships

While we acknowledge that PCP structure alone has not been extensively tested in the courts or at the Financial Ombudsman Service as an independent basis for unfair relationship claims, we submit that it may constitute a contributing factor to overall unfairness when combined with other factors under the cumulative assessment required by section 140A.

The argument proceeds as follows:

• Dealers had a financial incentive (potentially via commission) to promote PCP over Hire Purchase
• PCP offered apparently lower monthly payments, which was attractive to consumers
• However, the end result—ownership of the vehicle—is materially less likely under PCP
• Consumers were not adequately informed of this structural reality or the implications
• The combination of undisclosed commission and a product structure inherently disadvantageous to consumers may together create unfairness

We submit that the scheme should explicitly preserve consumers’ rights to argue that PCP structure is a relevant factor in any subsequent unfair relationship claim, particularly where combined with commission issues already addressed by the scheme.

PART 6: CLARITY AND CONSISTENCY IN SCHEME OPERATION

6.1 The Need for Prescriptive Rules with Minimal Discretion

A fundamental purpose of this redress scheme is to provide certainty—for consumers, for firms, and for the market. The consultation paper acknowledges the desirability of resolving matters in an orderly, consistent and efficient way and avoiding the costs and delays of individual litigation.

However, we are concerned that the scheme as drafted contains too much scope for lender discretion, which will inevitably lead to inconsistent outcomes, consumer confusion, and increased referrals to the Financial Ombudsman Service.

The scheme must be genuinely prescriptive. Rules should be clear enough that consumers and firms can predict outcomes with reasonable confidence. Where the scheme permits lender judgment on rebuttals, sophistication, or other factors, it invites the very inconsistency and dispute that a mass redress scheme should eliminate.

6.2 The Role of the Financial Ombudsman Service Post-Scheme

The consultation paper states at paragraph 5.21 that the FCA is engaging with the Financial Ombudsman on how complaints within the scope of the proposed scheme will be handled.

We submit that clarity is urgently needed on several points:

1. a) Scheme-related complaints: The consultation confirms that the Financial Ombudsman can only overturn a scheme outcome where the lender failed to follow scheme rules. This is appropriate for commission-specific complaints.
2. b) Non-scheme complaints: We request explicit confirmation that the Financial Ombudsman retains full jurisdiction to consider unfair relationship complaints based on factors outside the scheme’s scope (e.g. affordability, vehicle condition issues, PCP structure). These should be assessed under the Financial Ombudsman’s normal “fair and reasonable” standard, not limited to scheme rule compliance.
3. c) Preserved rights: Consumers should be clearly informed that scheme participation does not waive any rights to pursue separate complaints about non-commission matters.

6.3 Avoiding Scheme Disputes Through Clear Rules

The FCA states it does not want complaints to end up at the Financial Ombudsman Service in large numbers. The best way to achieve this is to draft scheme rules that leave minimal room for interpretation:

• Clear thresholds: The 35% of total cost of credit / 10% of loan threshold for “high commission” should be applied mechanically, not as a starting point for discretionary assessment.
• Limited rebuttals: As argued above, rebuttals should be confined to extremely narrow, objectively verifiable circumstances.
• Standardised communications: Consumer communications should follow prescribed templates to ensure consistency.
• Robust supervision: The FCA should actively supervise scheme operation, with published data on rebuttal rates by lender, rejection rates, and referral rates to the Financial Ombudsman.

PART 7: THE ROLE OF THE FINANCIAL OMBUDSMAN SERVICE

6.1 Uncertainty Regarding Post-Scheme Complaints

The consultation paper states that consumers who are told they are not owed compensation will only be able to get a different outcome from the Financial Ombudsman if it decides the firm did not follow the scheme rules.

We submit that this creates potential unacceptable uncertainty for consumers who wish to pursue unfair relationship claims based on factors outside the scheme’s scope.

6.2 Recommendation

The FCA should clarify that:

• The Financial Ombudsman retains full jurisdiction to consider unfair relationship complaints based on non-commission factors
• Participation in the scheme does not constitute acceptance that the relationship was fair in all other respects
• Consumers can refer complaints about non-commission factors to the Financial Ombudsman regardless of scheme participation

CONCLUSION

Allegiant Finance Services Limited broadly supports the introduction of an industry-wide redress scheme for motor finance commission due to the benefit it will provide consumers seeking financial justice. However, we have concerns that the proposed scheme:

1. Is narrow in scope – failing to address the cumulative nature of section 140A claims
2. Provides excessive rebuttal opportunities – creating scope for lenders to avoid legitimate liability
3. Lacks precision on key definitions – particularly regarding vulnerability and sophistication
4. Overstates the relevance of disclosure – potentially importing causation requirements rejected by the Supreme Court
5. Creates uncertainty about preserved rights – potentially prejudicing consumers who have additional grounds for complaint

We urge the FCA to:

• Provide explicit assurance that scheme participation does not prejudice non-commission unfair relationship claims
• Substantially narrow the rebuttal provisions
• Provide clear, strict definitions of vulnerability and sophistication
• Recognise that disclosure compliance is not a complete defence to unfairness
• Ensure the Financial Ombudsman retains full jurisdiction for non-commission complaints

We remain committed to constructive engagement with the FCA and would welcome the opportunity to discuss these matters further.

Allegiant Finance Services Limited

We consent to publication of our name as a respondent.

This response may be published. We do not require confidential treatment.

[1] A Zokaityte, “UK Car Finance Mis-selling: Reassessing Legal and Regulatory Challenges within Consumer Credit Markets”. European Journal of Risk Regulation. https://doi.org/10.1017/err.2025.10052, Page 14