The Financial Conduct Authority (FCA) has confirmed it will proceed with an industry-wide redress scheme for UK motor finance customers who were treated unfairly, finalising one of the largest remediation exercises since PPI.
The scheme follows court findings that firms broke the law by failing to disclose commission and other commercial ties in motor finance agreements. The FCA argued that a single, structured scheme is the quickest and most cost-effective way to deliver compensation, rather than handling millions of complaints through firms, the Financial Ombudsman Service and the courts.
The programme has direct implications for credit-related covers such as GAP and ancillary motor products, for professional indemnity (PI) and directors’ and officers’ (D&O) exposures, and for conduct, distribution and Consumer Duty risk management across motor and wider retail books.
The FCA received more than 1,000 consultation responses and said the final framework balances simplicity and cost-effectiveness with comprehensiveness and fairness.
Under the final design, the number of agreements expected to be eligible has fallen from 14.2 million at consultation to 12.1 million. Expected redress payments have been reduced from £8.2 billion to around £7.5 billion. Non-redress costs have fallen to an estimated £1.6 billion, helped by more targeted communications and streamlined processes. The total bill to firms is now forecast at £9.1 billion, down from an earlier estimate of £11 billion.
The FCA estimated that resolving complaints without a formal scheme would cost the industry more than £6 billion extra and extend legal and operational uncertainty for both consumers and firms over many years.
The scheme covers regulated motor finance agreements taken out between April 6, 2007 and Nov. 1, 2024 where commission was payable by the lender to the broker, typically the dealer.
Because liabilities date back to 2007, the FCA will run two linked schemes - one covering April 6, 2007, to March 31, 2014, and another from April 1, 2014, to Nov. 1, 2024. Some consultation respondents questioned whether the regulator could lawfully include pre‑2014 business, but the FCA has opted to proceed, with the structure designed so that any challenge to the earlier period should not delay redress for agreements from April 2014 onwards.
The regulator’s core concern is that, without this backstop, firms, the Ombudsman and the courts would be left to manage a long tail of historic complaints case by case.
Eligibility has been tightened so only those considered to have been treated unfairly receive compensation. Agreements involving minimal commission or 0% APR will not qualify. Where a lender can prove there were visible links between manufacturer and dealer, a contractual tie alone will not automatically trigger redress, and the threshold for “high commission” cases has been raised modestly.
Consumers will only be considered if they were not told about at least one of three lender–broker arrangements: a discretionary commission arrangement (DCA), a high commission structure, or an exclusive tie. DCAs, banned by the FCA in 2021 after it found they led to higher borrowing costs, sit at the heart of the scheme’s focus on undisclosed or conflicted remuneration.
Small commissions, interest‑free loans and DCAs that were not actually used are excluded, as are some cases where the lender can show that non-disclosure did not cause loss, for example where no better deal was realistically available. Consumers who have already had a successful Ombudsman decision, court judgment or settlement are out of scope, along with the very largest loans, which must be pursued individually.
Consumers generally have six years to bring a claim, but this can be extended where commission or a tie was deliberately concealed. The FCA says it does not expect lenders to treat cases as routinely time‑barred, given the poor standard of disclosure across the market. Firms can, however, exclude cases involving only high commission that ended before March 26, 2020, if they clearly and prominently disclosed that commission was payable. Any such decision can be challenged at the Ombudsman.
Approximately 90,000 “Johnson‑type” cases, involving undisclosed ties or DCAs and very high commission, will receive all commission plus interest. For all other eligible agreements, the FCA will use a hybrid remedy based on the average of estimated economic loss and commission paid, plus interest.
The loss estimates draw on analysis showing that DCA loans carried higher APRs than flat‑fee arrangements. The FCA applies a 17‑point APR adjustment for post‑2014 cases and a higher 21‑point adjustment pre‑2014, reflecting evidence that more harmful commission structures were concentrated in earlier years. To avoid over‑compensation, hybrid redress will be capped in around one in three cases; some borrowers with the very lowest APRs in the market will receive no payment. Simple interest will be paid using the Bank of England base rate plus 1%, with a 3% annual floor.
Implementation runs to June 30, 2026, for loans taken out from April 1, 2014, and Aug. 31, 2026, for earlier agreements. Existing and early complainants will be dealt with first, with lenders given three months after the implementation period to confirm any compensation. Firms then have six months to contact customers who are potentially owned money or ruled out of the scheme, while consumers have six months to respond. Those not contacted can complain to their firm up to Aug. 31, 2027.
A supervisory team led by a director will oversee compliance, with senior managers required to attest to their responsibility. The FCA has also created a taskforce with the Solicitors Regulation Authority, Advertising Standards Authority and Information Commissioner's Office to tackle poor motor finance claims handling by some claims management companies and law firms.
The scheme follows a series of cases, including Johnson, Hopcraft and Wrench, which tested whether undisclosed commission could make credit relationships "unfair" under the Consumer Credit Act.
While the Supreme Court curtailed some fiduciary and bribery-based routes, it left the statutory unfair-relationship regime intact, helping drive the FCA towards a structured redress solution.
For insurers, the scheme crystallises PI and D&O exposures around past commission models, disclosure and governance, and raises questions about add‑on products sold alongside finance, where similar conflicts can arise. It also reinforces the regulator’s direction of travel on Consumer Duty, disclosure and value, signalling that motor finance may be a template for future scrutiny of other commission-heavy distribution chains, including retail general insurance and protection.
Peter Rothwell, head of banking at KPMG UK said that FCA's announcement gives "grater clarity" on how the motor finance redress scheme will be put into action.
“The FCA has made the decision to implement two schemes, one covering April 2007 - March 2014 and another April 2014 - November 2024. This could help to speed up the process for some consumers, but also risks causing confusion for others," said Rothwell. “As the industry works through this detail, attention will turn to whether any elements of the scheme face further scrutiny or challenge.”
