FOS Interest Consultation: What It Could Mean for Motor Finance DCA Complaints - By Mike Hall – Profexx Partners Consultant
- Mike Hall
- Jun 23
- 3 min read
In early June, the Financial Ombudsman Service (FOS) launched a consultation on its longstanding 8% simple interest rate – a benchmark used in redress where customers have suffered financial loss or delayed compensation. Mike Hall, a seasoned remediation specialist, explores the practical and legal implications – especially in light of motor finance complaints and the emerging DCA landscape.
In early June 2025, the Financial Ombudsman Service (FOS) launched a consultation on compensation interest levels, seeking industry feedback on a set of proposals to better align with market conditions, proposing to replace the current 8% simple interest payable where a customer has suffered a financial loss either due to what is commonly known as ‘deprivation of money’, or where a firm fails to pay compensation on time.
These awards are industry standard – not only used by the FOS, but also routinely applied by businesses to align with ombudsman outcomes.
This timely consultation may well have implications for whatever comes next for Motor Finance DCA complaints.
The consultation proposes four options
Keep the current 8% simple interest rate
Introduce a lower fixed rate
Use a tracker based on the average Bank of England Base Rate over the period where interest is due +1%
Use a tracker based on the prevailing Bank of England Base Rate over the period where interest is due +1%
The FOS is currently recommending option 3.
At first sight, it would appear that moving away from the 8% rate of interest currently paid based on market conditions would make economic sense, but there’s something to consider, which is the law of unforeseen consequences, and here’s a great example: PPI.
In 2017, the FCA introduced a PPI deadline for complaints to bring the long-running saga to an orderly close, with the last complaints under the PPI complaint handling rules accepted on 29 August 2019.
But complaint management companies (CMCs) and law firms had other ideas. By leveraging the Unfair Relationship sections of the Consumer Credit Act, lenders continued to receive letters before action in relation to Plevin-based complaints for years after, moving the action into the courts – even triggering another Supreme Court judgment in 2023 (Smith and Burrell v Royal Bank of Scotland Plc [2023] UKSC 34).
If the FOS does move away from 8%, there will, for the first time, be a disparity between the levels of interest offered under different complaint resolution channels.
The County Court Act 1984 established the 8% interest rate payable. A deviation from that by the FOS may encourage more litigation, particularly with the courts still offering 8%.
Considering that some Motor Finance DCA complaints may relate to cases going back nearly two decades, and given the FCA’s redress proposals, this disparity could drive CMCs to pursue claims through the courts – especially as they may soon face a fee for referring complaints to the FOS.
Operationally, moving away from a fixed rate creates all kinds of complications for firms. Moving to a tracker rate of any description adds operational complexity to how calculations are made and how they are communicated to customers.
Anyone who has been in the industry long enough may remember the pain of calculating mortgage endowment redress, factoring in base rate changes over time. It made every single calculation manual, increasing costs and the need for quality checking.
Since 2007, when the FOS first took jurisdiction of Consumer Credit complaints, there have been 35 different Bank of England Base Rates – from 5.25% in early 2007 down to 0.1% in March 2020, and now 4.25% at time of writing.
Is there a case for a lower fixed rate? Yes. Averaged out over that period, the Base Rate is just under 3%, so adding 1% aligns roughly with the current tracker proposal and is about half the 8% currently used.
So, what do you think? Does the proposed reduction make sense after all?
Do the operational complexities of updating redress calculators, letter templates, and increased QA requirements make it worth it?
Will CMCs and law firms shift toward court-based omnibus claims, making some of the FOS’s actions moot – particularly in the Motor Finance DCA space?
Or will operational oversight costs eat up any savings from reduced interest?
Or would it, for now, just be better to keep things as they are and have one less thing for everyone to worry about?
If your firm is preparing for large-scale Motor Finance redress, understanding the implications of this consultation is essential.
Reach out for further insight or guidance on how to assess and
manage the potential impact.. Read the full consultation here:
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