Following the publication of the Financial Conduct Authority (FCA) Consultation paper on 7 October 2025 (the Consultation), the FCA has now opened the Consultation in respect of a compensation scheme for motor finance customers. This is a short six week consultation which is due to end on 18 November 2025, and it is still the intention that the compensation scheme will start in 2026.
The scale of the proposed scheme requires judgements to simplify complex legal and operational issues, so the FCA have said they welcome views on the proposals and potential alternatives. This feedback will enable them to ensure a robust and operationally effective scheme.
The FCA expects eligible consumers to receive approximately £700 per agreement on average, although there is expected to be a range of payment figures, with "many consumers receiving more and a large number receiving less." It is thought that around 44% of all people who entered into these agreements since 2007 - around 14 million people - may be eligible for a compensation payment if the arrangements are considered unfair.
Not all motor finance customers will be owed compensation. The scheme will consider an arrangement is unfair where it involves inadequate disclosure of one or more of the following:
- A discretionary commission arrangement.
- High commission arrangement (where the commission is equal to or greater than 35% of the total cost of credit and 10% of the loan).
- Tied arrangements that gave a lender exclusivity or a first right of refusal.
Based on the proposed scheme, the FCA estimate 85% of consumers would take part and if so, the FCA expects the total cost of the scheme for the industry to be approximately £11 billion. This would comprise of £8.2 billion in compensation payments and £2.8 billion in the costs of implementation.
The scheme
The scheme covers all motor finance agreements (April 2007- November 2024) which had commission arrangements in place in connection with the agreement.
Overview of the scheme steps and timings:
Stage 1: Pre-scheme checks - within three months (for consumers who have already complained) and six months (for consumers who have not complained) from the scheme starting. Firms will contact consumers to explain if their case can be assessed under the scheme and any actions they should take.
Stage 2: Assessment - three months for firms to complete this stage from the consumer joining scheme. Firms will assess whether they are liable to pay redress.
Stage 3: Redress calculation - three months for firms to complete this stage from the consumer joining scheme (stages 2 and 3 run concurrently). Calculation made using FCA formula.
Stage 4: Determination and payment – within one month. Firms send redress determination to consumers and pay consumers and pay redress where necessary.
The FCA will confirm by 4 December 2025 whether to extend deadlines for motor finance firms to provide a final response to customer complaints. If the motor finance consumer redress scheme goes ahead, the FCA expects to publish its policy statement and final rules for the scheme by early 2026, launching the scheme at the same time. Using this timeline, consumers are expected to start receiving compensation payments before the end of 2026.
If you would like more information on the FCA Consultation, please contact our expert Corporate solicitors.
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