The proposed scheme covers three types of arrangements that are presumed to be unfair.
Shortly after markets closed on 7 October 2025, the FCA published its consultation on a proposed motor finance redress scheme (the Scheme). It is also consulting on extending the deadline for firms to send a final response to certain motor finance complaints to 31 July 2026.
This consultation follows the UK Supreme Court’s August 2025 combined judgment in three motor finance commission cases, in which the court sought to carve a more moderate approach to the issues at hand than had been taken by the Court of Appeal (for more detail on the Supreme Court judgment, see this Latham blog post).
The Scheme is in part built around the successful case of Johnson, in which the Supreme Court found that there had been an unfair relationship between Mr Johnson and the lender for the purposes of Section 140A of the Consumer Credit Act 1974, which gave rise to a right to redress.
The FCA expects that, while the majority of motor finance agreements will not qualify for compensation, around 44% of all agreements made since 2007 will be considered unfair under the Scheme due to inadequate disclosure of certain details.
The FCA estimates that eligible customers will each receive an average payout of around £700 per agreement in compensation under the Scheme. The total cost of redress to lenders could be around £8.2 billion, plus an estimated £2.8 billion for the cost to firms of implementing the Scheme — which is at the lower end of the FCA’s previous estimates.
We explain the key details of the Scheme below.
Scope of the Scheme
The FCA is proposing that:
- Scheme case: In order to be a “scheme case”, a consumer must have entered into a motor finance agreement with an FCA-regulated lender, or a lender that previously held an OFT licence, and there must have been a commission arrangement connected to that agreement.
- Lookback period: The Scheme covers motor finance agreements taken out between 6 April 2007 and 1 November 2024, where commission was payable by the lender to the broker. The reason for looking back to 2007 is to achieve parity with the date range for complaints the Financial Ombudsman Service (FOS) can consider. The FCA gives guidance on how it expects data gaps to be filled for older agreements.
- Eligibility factors: Firms should determine that there was an unfair relationship for the purposes of the Scheme, and therefore redress is payable, where one or more of the following three types of arrangements existed and were not disclosed, or were inadequately disclosed, to the customer:
- A discretionary commission arrangement (DCA), which allowed the broker to adjust the interest rate the customer would pay to obtain a higher commission
- A high commission arrangement (where the commission is equal to or greater than 35% of the total cost of credit and 10% of the loan)
- A contractual arrangement or tie between the lender and broker, which provided exclusive or near-exclusive rights to lenders to provide credit
- Responsibility: The Scheme will be delivered by lenders, not brokers, although the FCA expects brokers to cooperate in the process, and to refer complaints within the scope of the Scheme to the relevant lender to determine. The FCA has sent a Dear CEO letter to both lenders and brokers outlining the steps it expects them to take now to prepare for the Scheme.
Interestingly, the FCA emphasises that the 35%/10% threshold was designed to fit the circumstances of the Scheme and should not be read across to any other retail financial services market.
Lenders may be able to rebut the presumption of unfairness in certain circumstances, such as when:
- There is evidence of adequate disclosure of the relevant arrangement in question.
- 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.
- 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).
However, these could be difficult and costly to prove in practice. In the absence of evidence showing there was adequate disclosure, it will be presumed to have been inadequate. The FCA notes that simply disclosing the bare fact, or possibility, of commission (for example, that commission “would” or “may” be payable) will not have been sufficient to constitute adequate disclosure.
Process
Lenders will need to proactively make customers aware of the Scheme. The FCA will also run an awareness campaign.
Firms are required to make assessments and payouts in a relatively short timeframe. Firms will be required to:
- Within three months of publication of the final rules for customers who have already complained, and within six months for customers who have not complained, review agreements to see if they qualify for the Scheme and contact customers to explain whether their case can be assessed under the Scheme (including whether their case features one of the relevant arrangements that gives rise to liability under the Scheme) as well as any actions they need to take. Customers who have already complained will be included in the Scheme unless they opt out, and customers who have not complained will be required to opt in.
- Within three months of a customer joining the Scheme, assess whether the firm is liable to pay redress, and if so, calculate the redress in accordance with specified calculation steps.
- Within one month of determining redress is due, pay out any redress calculated.
Lenders will also have the option to settle Scheme cases without completing all stages of the process, for example if it is more cost effective to pay out redress rather than run the full investigation.
The FCA provides the following diagram as an overview of the process:
The FOS will remain responsible for resolving the complaints it has already received, and these will not be dealt with through the Scheme as a matter of course. However, the FOS has a mechanism whereby the parties to a complaint can agree to the complaint being dealt with in accordance with the Scheme. It remains to be seen whether the FOS will continue to determine cases in accordance with its previous decisions or whether it will take an approach more in line with the FCA’s proposals. Further, the FCA highlights that the FOS will be able to review compliance with the Scheme if a customer considers a lender has not applied the rules of the scheme correctly. However, if an arrangement is not in scope of the Scheme but the customer nevertheless considers there was an unfair relationship, this would need to be dealt with by the courts.
Redress Calculation
Redress amounts will fall into two categories:
- “Usual” redress: In most cases, the FCA proposes that consumers will be compensated based on the average of what the FCA estimates they have overpaid, or lost, based on the relevant calculation method the FCA decides and the commission paid, plus interest on that amount.
- “Johnson” redress: In 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, the FCA is proposing that customers will receive the commission plus interest. The FCA expects the latter type of case to be relatively rare.
The FCA is proposing 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. The FCA estimates that this will be around 2.09%. This is a significant departure from the usual approach to compensation interest.
Next Steps
The consultation is open until 18 November 2025 for comments on the Scheme, and 4 November 2025 for comments on the FCA’s proposals to further extend the complaints handling deadline. The FCA intends to publish a Policy Statement and implement the Scheme from early 2026, depending on the feedback received. The FCA expects firms to start paying compensation later in 2026.
As lenders will be expected to move quickly once the Scheme is established, they should take the steps outlined in the Dear CEO letter now so that they are well-placed to deal with redress efficiently during the course of 2026. Lenders should also note that the FCA is proposing they appoint a Senior Manager to have overall responsibility for the firm’s delivery plan and compliance with the Scheme. Further, the FCA will require an attestation that the firm has taken adequate preparatory steps, and could require further attestations as the Scheme progresses.
