backThe FCA has announced the details of its proposed industry-wide redress scheme for motor finance customers who were treated unfairly between 2007 and 2024. This follows the UK Supreme Court’s recent judgment in the ‘Motor Finance litigation’1Hopcraft v Close Brothers Limited; Johnson v FirstRand Bank Limited; Wrench v FirstRand Bank Limited [2025] UKSC 33 (see our Client Alert here). The FCA estimates that about 44% of all motor finance agreements made between 2007 and November 2024 could be considered unfair and entitled to redress under the scheme.
To briefly recap, the ‘Motor Finance litigation’ was a joint appeal by lender appellants that concerned so-called ‘secret commissions’ paid to car dealerships by lenders for arranging the purchase of vehicles on finance. The Supreme Court largely ruled in favour of the lenders, finding that car dealers do not owe customers a fiduciary duty when acting as brokers and that the tort of bribery can only arise where the recipient of the ‘bribe’ owes a fiduciary duty to the payer of the bribe. However, in one case, it found that an abnormally high commission, combined with the non-disclosure of the commercial link between the dealer and the lender, was unfair under the Consumer Credit Act.
As a result of the judgment, the FCA has now announced the details of its much-anticipated redress scheme and launched a 6-week consultation before finalising it. The FCA says that the scheme is intended to address unfair financing arrangements, where unfairness will be assessed on the basis of inadequate disclosure of one or more of the following:
- a discretionary commission arrangement;
- 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. 2Although the FCA has indicated it is seeking views on potentially other criteria that might establish unfairness.
If one or more of the above factors is present, then an unfair financing arrangement will be presumed and the FCA expects that the circumstances in which lenders will be able to disprove unfairness will be “rare”. The onus for running the scheme and paying redress will be on lenders, although the FCA recognises that lenders may be able to seek contribution from brokers. Customers who are informed that they are not entitled to compensation will be able to complain to the Financial Ombudsman Service but only on the basis that a lender has not followed the scheme rules.
The FCA also recognises that given the period covered by the scheme (back to 2007) there may well be ‘evidential gaps’ in the information disclosed to consumers. To avoid consumers being disadvantaged, where there is an absence of evidence of what was disclosed, lenders would be required to presume that disclosure was inadequate (subject to certain limited rebuttals and the possibility of lenders evidencing the use of standardised templates at the time). The FCA therefore does not expect the absence of records being an impediment to significant numbers of cases being assessed under the scheme.
The compensation scheme would cover 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 estimates that lenders could pay out up to £8.2 billion in compensation as a result of the scheme, amounting to around £700 per agreement, on average. In the event 100% of estimated claimants join the FCA’s scheme, the total pay-out could be up to £9.7 billion – a notably smaller sum than earlier estimates of between £9-18 billion. The FCA also estimates the costs to lenders of implementing the scheme will be in the region of £2.8 billion
In its assessment of market impact, the FCA has concluded that the cost of dealing with motor finance complaints would be several billion pounds higher without the creation of a compensation scheme. It acknowledges that smaller, non-bank and non-prime lenders may have less access to funding than larger motor finance firms such that funding any redress payable under the scheme could be a challenge for those lenders. However, the FCA noted that lenders may be able to evidence that the relevant consumer would not have obtained a better offer from other lenders available through the broker at the time of the motor finance agreement, which could counter the presumption of loss or damage in favour of the consumer in some cases.
The FCA has proposed that consumers who complained to lenders prior to the scheme going live be included in the scheme unless they opt out and that they should be contacted by lenders within 3 months. Relevant consumers identified by lenders who have not complained when the scheme starts would be contacted within 6 months and asked if they would like to opt-in. The FCA has written to motor finance lender and broker CEOs outlining the expectations of what they must do prior to and following the scheme’s start date.
The FCA is asking for comments (i) by 4 November 2025 on its proposals to further extend how long firms have to provide a response to certain motor finance complaints to 31 July 2026; and (ii) by 18 November 2025 on its redress scheme proposals.
The FCA has stated that if it introduces a redress scheme, it expects to publish its policy statement and final rules by early 2026, with the scheme launching at the same time and consumers receiving compensation later in 2026.