09/10/2025
Insights Blog

The Financial Conduct Authority (FCA) has launched a consultation on an industry-wide redress scheme to compensate motor finance customers who may have been treated unfairly under historic commission arrangements. This follows the UK Supreme Court’s August 2025 judgment which clarified the legal position on discretionary commissions and unfair relationships under the Consumer Credit Act 1974, and which was the subject of our briefing here:Landmark ruling: UK Supreme Court clarifies consumer rights in motor finance agreements. The FCA estimates that up to £8.2 billion could be paid out to affected consumers, with compensation averaging around £700 per agreement.

Key features of the proposed scheme

Timeframe: the scheme will cover regulated motor finance agreements entered into between 6 April 2007 and 1 November 2024, where commission was payable by the lender to the broker.

Scope: an agreement will be considered unfair, and therefore eligible for redress under the scheme, where it involved inadequate disclosure of one or more of the following:

  • a discretionary commission arrangement;
  • a high commission (≥35% of the total cost of credit and10% of the loan);
  • contractual ties that gave the lender exclusivity or a right of first refusal.

The FCA estimates that 14.2 million agreements (44% of all agreements entered into since 2007) may be considered unfair. Lenders will be able to rebut the presumption of unfairness in limited circumstances.

Opt in:

  • Unresolved, open complaints will automatically be opted into the scheme.
  • Consumers who have not complained when the scheme starts will be identified, contacted and invited to opt in.
  • Consumers who have not been contacted but believe that their motor finance agreements are in scope can ask their lenders to review and opt them in if eligible.
  • Consumers who have had their complaints rejected and have not appealed to the Financial Ombudsman will be contacted and invited to opt in.
  • Consumers whose complaints have already been settled, or which are already with the Financial Ombudsman for review, will be excluded from the scheme.

Compensation:

  • For serious cases, the proposed redress is the repayment of the commission paid plus interest. Serious cases are those involving an undisclosed contractual tie and a commission which is ≥ 50% of the total cost of credit and 22.5% of the loan.
  • For other cases, the proposed redress is the average of what the FCA estimates the consumer overpaid or lost based on the FCA’s chosen methodology, and the commission paid plus interest.
  • Interest will be simple interest, based on the annual average Bank of England base rate per year plus 1% from the date of overpayment to the date the compensation is paid.
  • The FCA estimates that consumers will be compensated an average of £700 per agreement.

The FCA is inviting feedback on the key features of the proposed scheme, including the 35%/10% commission threshold and the compensation calculation.

Dear CEO letter

The FCA has also written to motor finance lender and broker CEOs, outlining the preparatory steps it expects them to take now, as well as when the scheme starts. Lenders are expected to:

  • accurately identify and effectively contact impacted consumers (with support from third parties such as brokers where required);
  • gather information to assess whether cases are in scope of the scheme and, where they are, to assess liability (with support from brokers as required) and reach appropriate decisions;
  • ensure compensation calculations are accurate, and payments are made quickly; and
  • ensure no undue delay at any stage of the proposed redress scheme.

The FCA will monitor the above and will intervene using its supervisory powers where firms fail to meet expectations, as well as its enforcement powers if necessary.

Next steps

The FCA’s consultation is open for feedback until 18 November 2025. The FCA intends to publish the final policy statement and rules in early 2026 and launch the redress scheme at the same time. An advertising campaign will be run to raise awareness of the scheme, with the first compensation payments being made later in 2026.