Millions of motor finance customers will receive compensation payments up to £830 under Financial Conduct Authority (FCA) redress scheme for undisclosed commission payments
Final details of the compensation scheme, which will cost finance firms £7.5bn, will see an average payout of £830 including redress and interest, with up to 12.1m agreements made between 2007 and 2024 eligible. The scheme covers discretionary commission arrangements (DCA) where sales staff offered loan terms while not disclosing commission was being paid dependent on the size of the repayments.
The eligibility criteria have been tightened, average compensation increased for older agreements and a minimum 3% compensatory interest rate per annum added.
The FCA said ‘payouts will be capped in around one in three cases to ensure no one is put in a better position than had they been treated fairly’.
Motor finance loans taken out between 6 April 2007 to 1 November 2024 are covered.
There will be a short implementation period so firms can prepare. This will be up to:
- 30 June 2026 for loans taken out from 1 April 2014;
- 31 August 2026 for those agreed earlier.
Lenders will have three months from the end of the implementation period to inform complainants whether they are owed compensation and how much. This means that people who have already complained or who complain before the end of the relevant implementation period will be compensated sooner.
The FCA stressed that car buyers do not need to use a management company or law firm to apply for compensation, with average 30% charges for these services. There is information on how to complain for free on the FCA website.
If you don’t complain and are owed money, your lender should contact you by end of 2026 for post 1 April 2014 agreements and end of February 2027 for agreements that started between 6 April 2007 and 31 March 2014.
Finance firms and banks affected by the redress scheme will need to take urgent action, and there is a one-month window for an appeal by lenders, but it seems unlikely this would succeed with the government offering full backing to the FCA scheme.
Peter Rothwell, head of banking at KPMG UK said: ‘The announcement gives lenders and the market greater clarity on how the motor finance redress scheme will be put into action.
‘While the final rules reflect some changes to eligibility and redress the FCA has stood firm on the main criteria and this remains a substantial exercise. With an initial start date of 30 June, lenders must now unpick the detail and move quickly from planning to execution.’
The final rules better reflect the Supreme Court’s fact‑specific approach in Johnson, addressing lender concerns that the consultation proposals risked going further than established legal principles on unfair relationships.
Sushil Kuner, head of financial services regulation at Freeths, said: ‘One of the most important clarifications in the FCA’s final scheme is its treatment of captive and white‑label motor finance. The rules now make clear that a visible or contractual link between a lender, manufacturer or dealer does not, by itself, give rise to redress.
‘That is a significant shift from the consultation framing, and one that will be welcomed across the captive finance and OEM‑linked sector.
‘The final scheme reflects a clear emphasis on deliverability and market stability. By narrowing scope, excluding low‑risk agreements and streamlining the process, the FCA has reduced the overall operational and financial burden on firms while still aiming to provide timely redress to consumers who were genuinely treated unfairly.
‘That said, firms should not underestimate the challenge. Complaints handling, evidence around unfairness and loss, and alignment between scheme outcomes and wider dispute resolution will remain critical focus areas over the next 18 months.’
The FCA has set up a dedicated supervisory team, led by a director, to monitor if firms are meeting the scheme’s rules with powers to act if firms fail to do so. If people disagree with their decision, they will be able to file a complaint with the Financial Ombudsman.
Nikhil Rathi, chief executive of the FCA, said: ‘We’ve listened to feedback to make sure the scheme is fair for consumers and proportionate for firms. Now we need everyone to get behind it and ensure millions get their money this year.
‘Payouts should not be delayed any longer…delivering compensation promptly also gives lenders the chance to rebuild trust, and means we can draw a line under the past.’