Motor Finance Redress Scheme Gets Moving

Following the Supreme Court’s landmark ‘Johnson’ motor finance ruling in August 2025,¹Hopcraft v Close Brothers Limited; Johnson v FirstRand Bank Limited; Wrench v FirstRand Bank Limited [2025] UKSC 33 and a subsequent consultation process by the Financial Conduct Authority (the “FCA”),²See our Client Alerts for Johnson and the initial proposed scheme and consultation process.  the FCA on 30 March 2026 announced the finalisation of an industry-wide redress scheme aimed at compensating motor finance customers who were treated unfairly by lenders between April 2007 and November 2024.

According to the FCA, around 12.1 million financing arrangements made during this period are now eligible for compensation under the scheme, with an estimated 75% of eligible consumers expected to make a claim. The FCA estimates that the scheme will cost lenders across the industry a total of £9.1 billion, comprising (i) the total value of compensation payments, which, according to the FCA, will amount to approximately £7.5 billion, and (ii) a further estimated £1.6 billion in administrative costs. Whilst this is a substantial sum, it is approximately £2 billion less than the initial estimate of £11.1 billion, and significantly less than the estimated cost of claims to lenders absent a redress scheme, which at one point had been put as high as £44 billion had the Supreme Court ruled in favour of the customer claimants on all grounds.

By way of background, the FCA’s redress scheme follows on from the Johnson decision in 2025 which was a joint appeal by lender appellants concerning undisclosed commissions paid to car dealerships by lenders for arranging the purchase of vehicles on finance. The Supreme Court found predominantly in favour of the lenders, rejecting most of the grounds on which the consumer claimants had sought compensation.  However, in one case, the Court found that an abnormally high commission, in combination with the non-disclosure of the commercial link between the dealer and the lender, was unfair under the Consumer Credit Act.

To address the large number of claims that might arise from the Supreme Court’s decision (and the litigation that preceded it), the FCA proposed a redress scheme for consumers in October 2025 (although there had been some recent speculation since that the FCA might abandon the proposed scheme altogether).

A key development since the FCA’s initial proposal is that it has decided to implement the scheme in two parts: the first scheme will apply to financing arrangements entered into between 6 April 2007 and 31 March 2014 and the second scheme will apply to arrangements entered into between 1 April 2014 and 1 November 2024 (together, the “Scheme”). The reason for this bifurcation is that the FCA anticipates that pre-April 2014 arrangements may be more susceptible to legal challenge. The FCA expects that splitting the Scheme into two parts could help speed up the process for consumers who entered into arrangements from April 2014 onwards in receiving any compensation owed to them, although there is some concern from those in the industry that doing so may risk causing confusion.

Customers will only be eligible for compensation under the Scheme if they were treated unfairly. A customer/lender relationship will be presumed unfair in circumstances where there was inadequate disclosure of at least one of the following:

1. a discretionary commission arrangement, by which the broker could adjust the interest rate offered to the customer to obtain a higher commission;
2. a high commission arrangement (i.e. at least 39% of the total cost of credit and 10% of the loan); and/or
3. contractual ties that gave a firm exclusivity or a right of first refusal.

The FCA has further clarified that a case will be deemed ‘fair’ (and therefore not amenable to compensation), if:

1. the arrangement involved minimal commission;
2. no interest was charged;
3. in circumstances where a contractual tie (as set out above) did exist, there was a visible link between the lender, car manufacturer and the dealer; and/or
4. the financing arrangement was not used to increase any commission payment.

High value loans (i.e. loans for amounts which exceed the 99.5^th percentile of loans in that particular year) have also been excluded from consideration under the Scheme. It is estimated that the compensation payments which are ultimately awarded will average around £829 per person; the original proposed scheme had estimated average payouts of £700.

The Finance and Leasing Association, which represents lenders, has acknowledged that the FCA has “endeavoured to make the redress scheme more proportionate than the proposed scheme consulted on in October”, but stated that it will “take time to assess the market impact of the measures announced”.

From the perspective of consumers, there remains a significant gap between the average payout anticipated under the Scheme (£829) and the average of closer to £1,500 which some, including the all-party parliamentary group on fair banking, say should be due to customer. This may increase the prospect of customers pursuing claims against lenders outside the redress scheme, a risk the FCA has been keen to limit. Some groups are even actively preparing legal action against certain lenders on a mass scale.

We will continue to monitor the Scheme and provide further updates as its implications play out. A link to the FCA’s announcement of the Scheme can be found here.