On 7 October 2025, the Financial Conduct Authority (FCA) published a consultation paper setting out its proposals in relation to setting up an industry-wide redress scheme to compensate motor finance customers who were unfairly treated between 2007 and 2024.

Background

The FCA set out that it considers that a compensation scheme is the best way to ensure consumers who have lost out receive fair compensation in an efficient way, while maintaining a functioning motor finance market.

The FCA explained that it is proposing this scheme now as it considers, following High Court and Supreme Court cases in which it intervened, that there is enough legal clarity that motor finance firms acted unfairly and provided insufficient disclosures to customers in relation to commission payments and commercial ties between lenders and brokers.

Key proposals

The FCA has set out its proposed approach to the design of the scheme, in particular:

  • Scope: The scheme would cover regulated motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker. The FCA expects that most motor finance agreements will not qualify for compensation under the scheme, as they will only be considered unfair if they involve inadequate disclosure of one or more of the following:
    • a discretionary commission arrangement (DCA)
    • high commission (where the commission is equal to or greater than 35% of the total cost of credit and 10% of the loan)
    • contractual ties that gave a lender exclusivity or a right of first refusal

However, the FCA also set out its proposal that lenders can rebut the presumption of unfairness if, for example:

  • there is evidence of adequate disclosure of the relevant arrangement in question, or
  • in cases only featuring a DCA, the lender can provide evidence that the broker selected the lowest interest rate at which they would not have made any additional commission, or
  • disclosure of the relevant arrangement in question was inadequate, but the lender can provide evidence that the consumer was sufficiently sophisticated to have nonetheless been aware of the relevant feature(s)
  • Opt in/opt out: The FCA proposes that must lenders contact consumers who complained before the scheme starts within 3 months, and these consumers will be included in the scheme unless they opt out. Those consumers who have not complained when the scheme starts would be contacted within 6 months of the scheme starting and will be asked if they would like to opt in. A consumer who has not been contacted can also contact the relevant firm and ask them to review their case within one year of the start date. Finally, consumers who have already been compensated for complaints will be excluded from the scheme.
  • Redress calculation: The FCA proposes that for cases involving an undisclosed contractual tie and commission equal to, or greater than, 50% of the total cost of credit and 22.5% of the loan those customers would receive commission plus interest under the scheme, although it expects these cases will be rare. For all other cases, the FCA proposes that consumers are compensated the average of what the FCA estimates they have overpaid, or lost, and the commission paid plus interest.
  • Interest: The FCA proposes that simple interest should be paid on the compensation, based on the annual average Bank of England base rate per year plus 1% from the date of overpayment to the date compensation is paid. Consumers will be able to challenge this with evidence if they feel this is unfair and the FCA estimates that the weighted average interest rate payable will be 2.09%.
  • Total cost of redress: On the basis that 85% of customers will take up the scheme, the estimated total cost to firms would be £11bn, considering redress and implementation costs.
  • Market impact: The FCA considers from its analysis that there will continue to be good product availability and competition amongst lenders in the market.
  • Complaints deadline: The FCA is also consulting on extending the deadline for firms to send a final response to certain motor finance complaints to 31 July 2026; however, this extension will not be extended to leasing arrangements as they are not covered by the scheme.
  • Expectations of firms: The FCA also proposes that lenders deliver the scheme, rather than brokers, but that brokers will be required to co-operate by providing lenders with information needed to operate the scheme. The FCA has written to motor finance lender and broker CEOs outlining steps they will be expected to take in advance of the scheme starting, including identifying and contacting impacted customers, gathering information to assess whether cases are in scope, ensuring calculations of compensation are accurate and paid quickly and there is no undue delay at any stage.

Finally, the FCA has also set out the principles it has sought to balance in setting up these scheme and states that it recognises that not everyone will get what they would like from it but that it welcomes views and alternatives to further enhance the scheme where appropriate.

Next Steps

The FCA is seeking responses in relation to the proposed extension of the complaint handling rules by 4 November 2025 and the consultation on the proposed redress scheme closes on 18 November 2025.

The FCA further set out that, subject to feedback received, it intends to publish final rules and that the scheme would launch in early 2026 with customers receiving compensation later in 2026.

On 8 October 2025, the FCA also published two Dear CEO Letters on the actions it expects firms to take now and expectations for Claims Management Companies involved in motor finance commission claims.