FCA consults on motor finance redress scheme

What does this mean?

Background

The FCA announced a review of discretionary commission arrangements (DCAs) (which were banned in 2021) in January 2024. 

On 1 August 2025, the Supreme Court found a lender acted unfairly - and therefore unlawfully - because of factors including: high, undisclosed commission paid to the broker; customer sophistication; and the failure to disclose a contractual tie (known as the Johnson case). The FCA confirmed on 3 August 2025 that it would proceed with a redress scheme.

The FCA’s consultation sets out proposed details of the redress scheme, as well as findings of the FCA’s review. The review identified widespread shortcomings in how motor finance firms disclosed key arrangements including commission, particularly under DCAs. The FCA reported that in the 3,333 DCA case files it reviewed, it found no evidence  that customers had been informed that commission “would” be paid, and had been given information about the DCA commission arrangement. 

Scope and design of redress scheme

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 sets out the four stages of the proposed scheme: identification of scheme cases and consumer consent; liability assessment; redress calculation; and redress determination. 

Under the liability assessment stage, lenders will be required to assess each case to determine whether there was an unfair relationship.

The FCA states that a relationship would be considered unfair where it involves inadequate disclosure of one or more of the following: 

• a DCA 

• high commission arrangement (where the commission is equal to or greater than 35% of the total cost of credit and 10% of the loan)

• tied arrangements that gave a lender exclusivity or a first right of refusal.

The FCA sets out certain presumptions firms will need to apply when assessing liability. The key presumptions are: that an unfair relationship arose from inadequate disclosure of a relevant arrangement; and that such an unfair relationship caused loss or damage to the consumer. The FCA also states that where evidence of what was disclosed is missing, lenders would have to presume that disclosure was inadequate. 

The regulator sets out the limited situations in which firms will be able to rebut these presumptions, as well as rules for how firms must take account of consumer vulnerability and sophistication. Circumstances for rebuttal include evidence of adequate disclosure of the relevant arrangement, but the threshold for rebuttal will be high for many firms.

Opt in v opt out

The FCA believes there are just over 4 million complaints with firms. It proposes lenders contact consumers who have already complained, within three months of the scheme starting. These customers will be included in the scheme unless they opt out. 

For customers who have not yet complained, lenders will need to identify relevant potential claimants and contact them within six months of the scheme starting, and ask if they would like to opt in.  

Consumers who have already been compensated for complaints covered by the scheme would be excluded. Consumers who have a live complaint with the Financial Ombudsman Service (FOS) will have their case resolved by the FOS. 

Redress calculation and cost of redress

The FCA sets out three potential methods for calculating redress: 

• the commission repayment remedy (amount of commission)

• the APR adjustment remedy (a loss-based remedy which applies a reduced APR of -17% over the life of the agreement)

• the hybrid remedy (the average result from the above two remedies).

The FCA proposes that consumers whose cases align closely with the Johnson case, should have the commission repayment remedy applied to their case. It defines these as cases involving a contractual tie and commission equal to, or greater than, 50% of the total cost of credit and 22.5% of the loan (the FCA expects these cases to be relatively rare). If the APR adjustment remedy is higher than the commission repayment remedy, redress will follow the APR adjustment remedy. 

For all other cases, redress will be the hybrid remedy (unless the APR adjustment remedy is higher, in which case, that will apply). 

The FCA proposes that simple interest 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. It estimates the weighted average interest rate payable will be 2.09%. 

Once the lender issues a provisional redress decision to a customer, the customer has one month to accept it, or reject it if they disagree with any aspect of the provisional redress decision, including the compensatory interest amount. 

The regulator expects that eligible consumers will receive an average of £700 per agreement. It is not proposing a de minimis threshold to be eligible for compensation. Instead, it proposes allowing lenders to settle low-value cases without completing all stages of the scheme. 

The FCA estimates 85% of consumers would take part in the scheme, which would result in lenders owing £8.2bn in redress, plus implementation costs of £2.8bn, bringing the total cost to £11bn. The FCA previously forecast total costs of between £9bn and £18bn. 

Complaints deadline

Firms currently do not have to provide a final response to relevant motor finance complaints before 4 December 2025. The FCA is proposing further extending this deadline to 31 July 2026, to align with the timetable of the redress scheme. 

The FCA is not proposing an extension for complaints about leasing agreements as they are not covered by the scheme. Firms need to start sending final responses to any motor leasing complaint from 5 December 2025.

Expectations of firms

The scheme will be delivered by lenders, but brokers must cooperate by providing information. The FCA acknowledges that brokers played a part in the failings and lenders may seek contributions from them. 

The FCA’s Dear CEO letter makes clear it expects lenders and brokers to take actions now to prepare for a redress scheme, and to manage existing complaints. It expects firms to take the following steps:

• accurately identify impacted customers

• gather appropriate information to assess cases - including identifying and addressing any record gaps

• review and strengthen case-handling systems and controls

• maintain adequate financial and non-financial resources

• ensure appropriate oversight and accountability for preparing for the scheme. 

The regulator’s Dear CEO letter to CMCs highlights concerns over misleading advertising, poor pre-contract disclosures, and excessive or unfair fees. It expects CMCs to act transparently, avoid unmeritorious or duplicate claims, and cooperate constructively with lenders. 

The FCA also states in the consultation paper that it expects to see all firms, including professional representatives, work together constructively in the best interest of consumers, and it will intervene where it identifies evidence to the contrary.

What do firms need to do?

The FCA’s Dear CEO letter makes clear that firms must take extensive preparatory action now, and not wait for the outcome of the consultation. Firms should begin building the operational capability to deliver redress efficiently and fairly, and should expect supervisory engagement from the regulator on their preparedness, including accountability of Senior Managers, and second and third-line oversight. The FCA proposes lenders appoint a suitable SMF to have overall responsibility for oversight of delivery and compliance with the scheme rules for their firm. 

Operational readiness: Firms should begin designing the systems and controls needed to implement the scheme at scale. The FCA expects automation to play a central role in redress delivery - which may include its use in case identification, calculation, and payment - to ensure consistency and efficiency. 

It will be critical to establish clear governance and assurance structures from the outset, setting defined standards for administering, monitoring and validating redress activity. Firms should ensure they have appropriate first, second and third line oversight, with audit trails that evidence decisions and enable internal and external assurance. Senior Managers will need to take reasonable steps to confirm that processes are well designed, properly documented and operating effectively, helping to minimise the risk of rework or challenge once the scheme is live. 

Data and records uplift: Gaps in records, particularly for older agreements, are likely to be one of the greatest challenges. The FCA expects firms to review the completeness and accuracy of their data, and plan to address gaps. This may include using external data sources such as credit reference agencies, or using technology solutions to recreate missing data. Early engagement and collaboration between lenders and brokers will be key to filling information gaps and ensuring the scheme operates effectively.

Handling existing complaints: Firms must also prepare to manage their current portfolio of complaints. From 5 December 2025, leasing-agreement complaints will again be subject to the standard eight-week DISP timeframe. For commission-related complaints, firms should continue gathering evidence to enable eventual resolution. They should also continue to identify and progress complaints relating to issues that fall outside the scheme (such as affordability or forbearance), ensuring they provide a final response within the usual eight-week time limit.

Maintain adequate resources: The FCA reminds lenders of their obligations to maintain adequate financial and non-financial resources. They should assess the financial impact of the proposed redress under the scheme against current business models and update wind-down plans as appropriate.

Next steps

The consultation closes on 18 November 2025 for comments on the redress scheme proposals, and on 4 November 2025 for comments on proposals to further extend the complaints deadline. 

The FCA plans to publish a policy statement in early 2026. The scheme would launch at the same time, with consumers starting to receive compensation later in 2026.