S&U: FCA Must Prove Change in Motor Finance Redress Scheme

A New Era for Motor Finance Regulation

The chair of specialist lender S&U has emphasized that the motor finance redress scheme presents a unique opportunity for the UK’s financial watchdog to translate its “regulate for growth” philosophy into tangible action. Anthony Coombs, who has long been vocal about his concerns regarding the Financial Conduct Authority (FCA), praised the Supreme Court's recent ruling on car finance as a step in the right direction.

Coombs highlighted the importance of this decision, noting that it could lead to a more balanced market where consumers benefit from better deals without being burdened by excessive regulations. He expressed confidence that the FCA is now taking a more constructive approach to the redress scheme, which he believes aligns with the broader interests of the government and the economy.

A Shift in Tone from the FCA

Coombs, who previously criticized the FCA for its handling of the motor finance crisis, acknowledged a noticeable shift in the regulator’s tone and approach. He stated that while the regulatory environment remains complex, there is a growing recognition of the need for a more streamlined and effective system. This change, he hopes, will continue to be reflected in the FCA’s actions moving forward.

Despite these positive developments, Coombs pointed out that the regulatory landscape is still challenging. He emphasized that significant work remains to be done to ensure that the market functions properly and that consumers are adequately protected.

S&U’s Performance and Outlook

S&U, which was founded in 1938 under the name Sports and Utilities, recently faced a financial setback due to its vehicle finance business, Advantage. The company reported a near £10m hit to its profit, with earnings falling to £33.6m for the financial year ending January 31, 2025. This decline was attributed to a £12m loss at Advantage and an increase in impairment charges, reflecting a rise in motor finance arrears.

However, S&U remains optimistic about its future performance. The firm noted that it is trending ahead of 2024 at the half-year mark and expects continued growth. This optimism was reflected in the stock market, where S&U shares surged over ten percent to 1,916.75 on Monday.

Confidence in Advantage’s Position

Coombs expressed confidence in Advantage’s standing despite the Supreme Court’s ruling, which left the door open for claims under the Consumer Credit Act for high commission deals. He stated that while he would not make predictions, he believed these developments would not negatively impact Advantage.

Coombs, who served as a Conservative MP from 1987 to 1997, described the Supreme Court’s verdict as a significant step forward. He also praised the FCA’s proposed consultation on redress, emphasizing the importance of the regulator’s ability to streamline regulations effectively.

Criticism of Claims Management Companies

The FCA has announced plans for a redress scheme aimed at eliminating the need for law firms or claims management companies (CMCs). The regulator noted that in the past year, 225 promotions from CMCs required amendments or withdrawal, including some that were overly speculative in their claims about potential compensation.

Coombs criticized these CMCs, calling them “ghastly” and condemning their aggressive advertising campaigns. He highlighted the misleading nature of their advertisements, pointing out that they are often seen in public spaces such as motorway service stations. He described the situation as disgraceful and called for stricter oversight.

Concerns Over Potential Tax Increases

While banks have managed to avoid a potentially £44bn crisis in the motor finance sector, industry leaders have raised concerns about a possible tax raid by Chancellor Rachel Reeves in the Autumn. A monetary reform group suggested that top banks could face a sector hike of £11.3bn to fund recent policy changes by the Labour government.

Coombs warned that given the fragile state of consumer confidence, which remains in negative territory, the Chancellor must proceed with caution. He urged Reeves to avoid new taxes if possible, stating that this is essential for maintaining economic stability.