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A major motor finance provider is said to be at risk of collapse weeks after an industry-wide redress scheme was confirmed by the City regulator, adding huge costs to firms across the sector. Blue Motor Finance, which is said to be facing a redress bill in excess of £50million, is understood to be lining up administrators as it weighs up potential solutions, Sky News reports.

EY, one of the world's "Big Four" accountancy firms, is said to have been chosen to work with Blue on developing plans for a rescue deal and is expected to be in charge of the insolvency process if they can't get one, as per the outlet. Motor finance industry sources told Sky News that earlier this year UK bank Shawbrook stepped away from a "forward flow" funding agreement with the firm. That was thought to have increased financial pressures on Blue.

Blue is yet to comment on the report, but Car Dealer says it understands that representatives have told retailers the claims of being on the brink of collapse are false.

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That outlet said in one message it saw, a finance manager even told account holders that Sky had "fallen foul to misinformation", suggesting rival car finance firms may have been behind the rumours.

It comes after the Financial Conduct Authority (FCA), the UK's main financial watchdog, recently confirmed it would launch the £9.1bn consumer redress scheme to address a long-running misselling row - following a lengthy consultation.

The compensation scheme was set up to "help people who were treated unfairly when they bought a vehicle on finance", the Citizens Advice website explains.

It relates primarily the use of widespread use of Discretionary Commission Arrangement (DCA) an "arrangement between lenders and brokers (the person arranging the loan, e.g. the car dealer) which allowed the broker to adjust the interest rates offered to customers and would impact the commission the broker received", a message to customers on Blue's website reads.

"This was banned by the FCA on 28th January 2021, and they are now retrospectively investigating the use of DCAs in car finance," it explains.

Blue says on its website that it "provides finance on used cars to consumers, both directly and through a nationwide network of introducers".

"In a short period of time, Blue has become one of the UK's leading technology and analytics driven companies lending £2.5bn to more than 250,000 customers."

It is not clear how much of the lending activity they refer to falls within the scope of the redress scheme.

People owed money from any lender will get an average of £829 compensation for each finance agreement.

However, the programme is facing legal challenges, potentially delaying payments, with lenders concerned about the huge costs of administering claims, and the scope of the scheme.

Express.co.uk has approached Blue Motor Finance for comment via email.