What the FCA told MPs, and why three more years matters
Senior officials at the Financial Conduct Authority told a parliamentary committee on 9 June 2026 that ongoing legal disputes from both lenders and a consumer claims group are stretching the regulator's supervisory capacity and prolonging resolution of the motor finance scandal, as reported by the Guardian.
The regulator's compensation scheme follows the October 2024 Court of Appeal ruling in Johnson v FirstRand, which found that discretionary commission arrangements (DCAs) in motor finance were unlawful. The Supreme Court upheld the ruling in early 2025, potentially affecting up to 40 million agreements across the UK.
The FCA's message to MPs was blunt: a complaints-led approach, forced by the legal challenges, would pile an additional £6bn in costs on to lenders and push final resolution out by as many as three years. That timeline matters because every month of uncertainty forces lenders to hold larger capital buffers against potential liabilities, capital that would otherwise be deployed as credit.
The regulator has faced criticism on two fronts simultaneously. Consumer claims firms have challenged the scheme's scope as too narrow, arguing it excludes categories of borrower who suffered harm. Lenders, meanwhile, contend that the FCA's methodology overstates their liability. The result, according to the FCA, is a two-front legal battle that is draining resources and delaying outcomes for all parties.
The £6bn question: where the extra costs fall
The £6bn figure disclosed to MPs sits on top of what analysts have already estimated to be a total redress exposure of roughly £16bn to £20bn across the industry. Major lenders have begun provisioning accordingly.
Lloyds Banking Group (LSE: LLOY), the UK's largest motor finance provider through its Black Horse division, has booked multi-billion-pound provisions against the scandal. Barclays (LSE: BARC) and Close Brothers (LSE: CBG) have similarly set aside significant sums, according to their most recent financial disclosures.
For specialist auto finance houses without the diversified balance sheets of high-street banks, the additional burden is proportionally heavier. Smaller lenders face a choice between raising fresh capital, restricting new lending, or repricing existing products to absorb the hit. In practice, many will do all three.
The uncertainty itself carries a cost. Provisions are estimates; until the legal disputes are resolved, lenders cannot be certain whether their reserves are adequate or excessive. That ambiguity feeds directly into how credit committees assess risk on new lending, particularly in asset-backed categories such as vehicle finance and equipment leasing.
What this means for SME vehicle and asset finance
The downstream effects for business borrowers are already becoming visible. Motor finance and broader asset finance share the same origination infrastructure at most UK lenders. When balance-sheet stress hits one product line, it tends to ripple across adjacent categories.
SMEs that rely on vehicle finance for commercial fleets should anticipate several practical consequences.
Tighter approval criteria
Lenders under capital pressure tend to narrow their risk appetite. Businesses with thinner credit profiles, shorter trading histories, or higher existing leverage are likely to find approval processes slower and more demanding. Documentation requirements may increase as lenders seek additional comfort on residual values and borrower creditworthiness.
Higher pricing
The cost of funds for motor and asset finance is likely to rise as lenders pass through the expense of increased provisioning. Even where base rates remain stable, margins on asset finance facilities could widen by 25 to 50 basis points or more, depending on the lender's exposure to the DCA redress bill, according to industry estimates.
Reduced product choice
Some specialist lenders may withdraw from segments of the market entirely if the economics no longer work. That consolidation reduces competition and further strengthens the pricing power of remaining providers. For SMEs operating in sectors with high fleet intensity, such as logistics, construction, and field services, the effect is material.
The irony is that none of this relates to the creditworthiness of the business borrower. It is a supply-side shock driven by historical consumer lending practices, but it lands squarely on the balance sheets that fund commercial asset finance.
What operators should do now
Finance directors and operations leaders at fleet-dependent businesses face a period of adjustment rather than crisis, but preparation matters.
First, existing facilities should be reviewed. Businesses with asset finance agreements approaching renewal should begin conversations with lenders early. Waiting until the last quarter of a facility's term risks encountering a lender that has tightened criteria or withdrawn from the product altogether.
Second, diversification of funding sources is prudent. Relying on a single lender for all fleet and equipment finance concentrates exposure to that institution's provisioning decisions. Maintaining relationships with at least two or three providers creates optionality.
Third, the total cost of vehicle ownership deserves fresh scrutiny. If finance costs rise, the calculus around fleet size, replacement cycles, and the balance between ownership and contract hire shifts. Operators may find that extending vehicle life by 12 months, or shifting a portion of the fleet to operating leases held off-balance-sheet, offsets some of the increased borrowing cost.
Finally, businesses should monitor the legal proceedings closely. The FCA indicated to MPs that the disputes could take up to three years to resolve, but earlier settlement remains possible. A faster resolution would release provisioned capital back into the lending market and ease conditions for borrowers.
The motor finance scandal began as a consumer protection issue. Its consequences now extend well beyond the showroom, reshaping the terms on which UK businesses finance the assets they need to operate.
