FCA Consults On Motor Finance Compensation Scheme

The FCA has published Consultation Paper 25/27 – Motor Finance Consumer Redress Scheme (CP25/27) on a proposed industry-wide scheme to compensate motor finance customers who were treated unfairly. This would be just the third instance of a formal industry-wide Consumer Redress Scheme after Arch Cru and the British Steel Pension Scheme.

The scheme will 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 considers that the majority of motor finance agreements will not qualify for compensation. It estimates that 14.2m agreements – 44% of all agreements made since 2007 – will be considered unfair because 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); or
• contractual ties that gave a lender exclusivity or a right of first refusal.

CP25/27 proposes enabling lenders to rebut the presumption of unfairness in some limited circumstances. For example, lenders would be entitled to determine there was no unfair relationship under the scheme if:

• 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). The FCA has been clear this should only apply in very limited circumstances.

The scheme will be a mixture of opt in and opt out; the FCA is proposing that consumers who have already complained to firms be contacted by lenders, and will be included within the scheme unless they opt out. Consumers who have not complained when the scheme starts would be contacted, where lenders can identify them, and asked if they would like to opt-in. Any consumers who have not been contacted can ask their firm to review their case at any time within one year of the scheme start date. The FCA will run an advertising campaign to raise awareness of the scheme.

With respect to redress calculation, in the majority of cases, CP25/27 proposes that consumers are compensated the average of what the FCA estimates they have overpaid, or lost, and the commission paid, plus interest at Bank of England base rate plus 1%. It anticipates that only a small number of cases will have similar features to the case considered by the Supreme Court Johnson, but those which do have similar features will be treated in line with that decision (i.e. the repayment of all commission). The regulator estimates that around 85% of eligible consumers will take part in the scheme, which would mean estimated redress of £8.2bn (including interest).

CP25/27 also proposes extending the deadline for firms to send a final response to certain motor finance complaints to 31 July 2026. However, no extension is planned in respect of handling complaints about leasing agreements as these are not covered by the legislation relating to unfair relationships and so are do not fall under the scheme. Firms will therefore need to start sending final responses to any motor leasing complaint from 5 December 2025.

Responses to CP25/27 are requested by 18 November 2025. Feedback regarding the proposal to extend complaint handling rules is requested by 4 November 2025. If the FCA decides to implement a redress scheme, final rules are expected in a policy statement by early 2026. The scheme would launch at the same time, with consumers starting to receive compensation later in 2026.

Several supporting materials have been published with CP25/27, including:

• Diagnostic report: FCA review of motor finance commission arrangements;
• Technical annexes to the CP and cost benefit analysis, including: Technical Annex 1: Data, analysis of loss, and liability and cost methodologies; Technical Annex 2: State of Competition in the Motor Finance Market; Technical Annex 3: Market Impacts; and Technical Annex 4: Market Impacts Methodology;
• Research Note: Motor Finance Consumer Awareness Survey analysis. Additional methodological details are set out in a Technical Annex;
• Motor Vehicle Finance Consumer Research;
• Market impact assessment on cost of capital and investment in the motor finance market; and
• Cost Benefit Analysis (CBA) Panel advice.

Additionally, the FCA has published 'Dear CEO' letters to lenders and brokers and to claims management companies (CMCs). With regard to lenders and brokers, the FCA sets out how it expects firms to handle existing leasing complaints and other existing complaints, as well as the preparations which firms should make for a potential scheme

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