The road to redress: FCA’s motor finance commission consultation explained

The headline points are:

• Scope: Covers credit agreements for motor vehicles entered into by consumers between 6 April 2007 and 1 November 2024, where undisclosed or excessive commission was paid by lenders to brokers. All eligible agreements, regardless of value, are in scope. Complaints already at the Financial Ombudsman Service (FOS) are out of scope.
• Estimated redress: Up to £8.2 billion, with average payouts around £700 per agreement. Two different redress calculations proposed, depending on the facts of a specific case.
• Responsibility: Lenders will be responsible for identifying affected customers and administering compensation. Brokers are expected to assist by providing relevant documentation and information and may still face contractual recourse.
• Process: The FCA has proposed a four-stage redress process, requiring firms to (i) identify affected cases and contact customers, (ii) assess liability by determining whether an unfair relationship existed and caused the consumer loss or damage, (iii) calculate compensation, and (iv) communicate provisional and final outcomes within specified timeframes.
• Opt-in or opt-out: The FCA proposes a mixed model – consumers who have already complained will be automatically included unless they opt out, while lenders must invite others to opt in.
• Consultation deadline: The consultation closes on 18 November 2025, with final rules expected in early 2026. The deadline for comments on the FCA’s proposals to further extend the complaints handling deadline (outside of leasing complaints) is 4 November 2025.
• Complaint-handling deadlines: Firms must begin issuing final responses for leasing complaints from 5 December 2025. For other complaints, the FCA is currently proposing extending the existing complaints handling pause to 31 July 2026.

What will the scheme cover?

The FCA is proposing that the scheme would cover regulated motor finance agreements taken out by consumers between 6 April 2007 and 1 November 2024 in connection with which commission was paid by the lender (or a third party) to a credit broker.

• Motor finance agreements: Regulated credit agreements used wholly or partly to finance the purchase or hire of a motor vehicle. These will typically be personal contract purchase, hire purchase, or conditional sale agreements. It does not include pure ‘hire’ agreements.
• Motor vehicles: a mechanically propelled vehicle, with its own engine or motor. The FCA will not provide an exhaustive list, but has confirmed that towed caravans are excluded.
• Commission arrangements: An arrangement relating to the commission, fee, other form of remuneration payable (directly or indirectly) by a lender or a third party to a broker in connection with the entering into of a specific motor finance agreement.
• Consumers: Aligned with the Consumer Credit Act 1974 (CCA) definition. Covers individuals, including sole traders and small partnerships, who were residing in the UK at the time of entering into the relevant agreement. Limited companies and CCA-exempt agreements (e.g. business-purpose loans over £25,000 and loans with CCA high net worth customers) are excluded.

The scheme will not apply to complaints that have already been referred to the FOS and fall within its jurisdiction, nor to agreements that have already been the subject of redress or a Court judgment. It will also exclude agreements where no commission was paid to the broker.

The FCA has confirmed that there will be no de minimis threshold, meaning all eligible agreements – regardless of value – can be considered for redress.

How far back will lenders need to look?

The proposed scheme will cover motor finance agreements entered into between 6 April 2007 and 1 November 2024.

The start date reflects the point at which the unfair relationship regime under the CCA came into force and the FOS acquired jurisdiction over consumer credit complaints. The FCA sees this as a logical starting point that enables a more comprehensive scheme and avoids gaps in redress eligibility. The end date falls one week after the Court of Appeal’s decision in Johnson v FirstRand. The FCA considers that, by this point, firms had changed practices in response to the judgment.

The FCA has confirmed that claims time-barred under court limitation rules will be excluded from the scheme, though it expects this to be rare. It considers the deliberate concealment exception to apply to most cases – meaning limitation does not begin until the consumer discovers (or could with reasonable diligence have discovered) the material facts.

Is the scheme opt-in or opt-out?

The FCA has proposed a mixed approach, with some consumers automatically included unless they opt out and others invited to opt in, depending on their complaint history.

Consumers who have already complained must be contacted and included in the scheme unless they choose to opt out. For consumers who have not previously complained, lenders must contact them (where identifiable) and invite them to opt in.

How will the redress process work for lenders?

The FCA has proposed a four-stage process for assessing and delivering redress under the scheme.

The four stages are:

1. Pre-Scheme Checks
2. Liability Assessment
3. Redress Calculation
4. Redress Determination

Firms may choose to make a settlement offer at any point, which could allow them to bypass later stages of the process where appropriate.

Stage 1: What checks need to take place before the scheme begins?

Identifying scheme cases

Lenders must begin by identifying all agreements entered into between 6 April 2007 and 1 November 2024 where commission was payable to a broker. Each agreement must then be assessed to determine whether it falls within the scope of the scheme and whether it involved one or more of the following “relevant arrangements” – which, if not properly disclosed, the FCA considers could give rise to an unfair relationship:

1. Discretionary commission arrangement (DCA): where the broker had discretion to set or influence the interest rate or other key pricing terms in a way that affected the commission they received from the lender
2. High commission arrangement where the commission payable amounts to 35% (or more) of the total cost of credit and 10% (or more) of the amount financed
3. Tied arrangement: where a contractual requirement gives the lender exclusivity or a right of first refusal

The FCA is consulting on whether additional arrangements should be included.

To identify these arrangements, lenders must review internal records (eg credit agreements, broker contracts), request information from brokers, and, if necessary, ask the customer. A senior manager attestation is required to confirm that reasonable steps have been taken to locate relevant records.

The FCA recognises that firms may struggle to identify all records going back to 2007. If, after exhausting all available sources (including brokers and customers), a firm cannot identify a ‘relevant commission arrangement', no unfairness will be found.

Contacting customers

Once the relevant agreements are identified, lenders must contact all affected customers:

• Those who have already complained must be contacted within three months of the scheme’s start and will be automatically included, unless they opt out within one month.
• Customers who have not previously complained must be contacted within six months and invited to opt in. These customers will be given six months from the date of invitation to respond.

If a customer does not receive an invitation but believes they may be eligible, they can contact their lender to request a review within one year of the scheme's launch.

Where no response is received, lenders must send a reminder after one month and take reasonable steps to reach the customer. This may include using public records, phone, email, or tracing services such as credit reference agencies. To support awareness, the FCA will run a mass consumer campaign to ensure customers are informed and able to engage with the scheme.

Stage 2: How to assess liability?

For each “scheme case” where the customer decides to participate in the scheme, the firm must determine (i) whether there was an unfair relationship; and (ii) whether, if so, this caused loss and damage to the customer.

Lenders will be liable where an in-scope agreement gave rise to an unfair relationship due to a failure to disclose one or more relevant arrangements. Once a relevant arrangement is confirmed, two presumptions apply: that inadequate disclosure led to an unfair relationship, and that the customer suffered loss or damage as a result.

Presumption 1: Inadequate disclosure gave rise to unfair relationship

The first presumption can be rebutted if the lender can show that disclosure was clear, tailored to the average consumer, and sufficient to explain the nature and impact of the arrangement. Evidence may include broker communications, standardised templates, or customer-specific documents. Disclosure expectations also vary by arrangement type:

• For DCAs, lenders must show the customer was told commission was paid, how it linked to the interest rate, and that brokers had discretion.
• For high commission arrangements, the fact and amount of commission should be disclosed, or enough detail provided for the customer to calculate it.
• For tied arrangements, lenders must explain whether the tie gave exclusivity or a right of first refusal.

The FCA acknowledges that there might be “limited” situations where it could be argued that the existence of a contractual tie was obvious – for example, a car dealership selling a specific brand of car from the manufacturer's lending arm. In those situations, the FCA considers that the link between the dealership and the lender could be clear without requiring explicit disclosure. It is seeking views as to whether those scenarios should be specifically catered for in the redress scheme.

Where more than one relevant arrangement existed in relation to a particular agreement, disclosure of information which relates to each arrangement is needed.

Where records are missing, inadequate disclosure will be presumed unless proven otherwise.

Where disclosure was inadequate, lenders may rebut the presumption that this gave rise to unfairness by demonstrating, with customer-specific evidence, that the customer was sufficiently sophisticated to understand the arrangement, though the FCA notes this will be rare.

Where the relevant arrangement is a DCA, lenders may rebut the presumption of unfairness by showing that the broker selected the lowest interest rate at which they were not making discretionary commission under the arrangement.

Presumption 2: The unfair relationship caused loss or damage to the customer

The presumption that any unfairness caused loss and damage to the customer can be rebutted in cases involving a high commission arrangement or a tied arrangement, if the lender can demonstrate that the customer could not have obtained a better deal with any other lender the broker had arrangements with at the time of entering into the agreement. The lender must be able to produce clear, dated, customer-specific evidence of this. The FCA acknowledges this may be difficult to substantiate, particularly for older agreements. Where the relevant arrangement is a DCA, the presumption that this caused loss and damage is irrebuttable (although if the lender can demonstrate that the broker did not make any discretionary commission, an unfair relationship will not have arisen in the first place as the first presumption would have been rebutted).

Stage 3: How to calculate redress?

Where a firm has determined that there is an unfair relationship that has caused loss and damage, it must calculate redress. The FCA proposes two methods: the Commission Repayment Remedy and the APR Adjustment Remedy.

• The Commission Repayment Remedy requires firms to pay to the customer the total amount of commission payable, plus compensatory interest from the time the loan was entered into to when redress is paid.
• The APR Adjustment Remedy requires firms to calculate what the customer would have paid if the APR on their loan had been 17% lower than it actually was. For loans involving DCAs with a minimum discretionary commission-paying interest rate, the FCA notes that APR Adjustment may be limited by the lower interest rate the broker would have accepted. This means the full 17% reduction may not apply in all cases. Where the recalculated APR falls below the minimum interest rate specified in the agreement, firms should instead apply the minimum rate when calculating redress. For each overpayment, compensatory interest is added from the date of payment to the redress date.

With both remedies, compensatory interest is applied on a simple basis, using an annualised average of the Bank of England Base Rate plus 1 percentage point, rounded up to the nearest quarter point.

In most cases, firms must apply a 'hybrid' remedy, by calculating both remedies and awarding the average of the two. However, the APR Adjustment Remedy acts as a minimum floor – if the hybrid would result in lower redress, the APR Adjustment Remedy must be used.

Where the customer's agreement has both commission of at least 50% of the total cost of credit and 22.5% of the loan amount, along with a tied arrangement (as was the case in Johnson v FirstRand), the lender must apply the higher of the Commission Repayment Remedy or the APR Adjustment Remedy.

Redress is not cumulative where there is more than one relevant arrangement.  The scheme also does not provide redress for wider consequential losses. However, customers may seek compensation for additional borrowing costs if they can provide contemporaneous evidence – such as bank statements, records of further borrowing, or correspondence showing financial distress linked to the motor finance agreement. 

Stage 4: How to communicate redress outcomes?

Lenders must issue a provisional redress decision to consumers within three months of the end of the first stage of the scheme, setting out the proposed outcome and including a clear explanation that the consumer must notify them if they disagree with any aspect of the decision.

If no objection is received, a final redress determination will be issued one month after the provisional decision was sent, provided the consumer has not notified the lender within that period that they wish to object to the decision. 

What are the key deadlines for lenders?

Responses to the FCA’s consultation paper are due by 18 November 2025. Final rules are expected in a policy statement in early 2026, with the redress scheme launching at the same time.

In respect of complaint handling times, the FCA is not proposing to extend complaint handling times for leasing agreements beyond 4 December 2025. Firms must be ready to begin issuing final responses to these complaints from 5 December 2025. For other complaints, the FCA is consulting on extending the pause on final responses to 31 July 2026. Responses to the FCA’s proposal to further extend the complaints handling deadline are due by 4 November 2025.

What should lenders be doing now?

Lenders should be actively reviewing the FCA’s proposals and preparing for implementation. With responses due in mid-November, there is limited time to consider the implications. Firms must assess whether they can operate within the proposed framework or whether any legal or operational challenges warrant engagement with the FCA.

Preparation should begin immediately. The FCA’s Dear CEO letter makes it clear that firms are expected to take steps now.

• This includes identifying the impacted customer population, gathering relevant records and documentation, assessing whether current systems and controls are sufficient to operationalise the scheme and ensuring appropriate oversight. Any foreseeable issues should be flagged to the FCA.
• Firms must also establish appropriate governance arrangements. The FCA will require a senior manager attestation, so firms should identify the responsible individual and ensure they have the necessary reporting and visibility to support that role.

Are brokers "off-the-hook"? 

While the scheme is clearly addressed to lenders, brokers are not entirely out of scope.

Brokers will not be required to pay redress under the scheme, but lenders may have recourse where brokers failed to meet their contractual disclosure obligations. This could include claims for breach of contract or under indemnity provisions, depending on the terms of the broker-lender relationship.

Brokers are also expected to assist lenders in delivering the scheme. They may be asked to provide documents or information and must respond within one month of any request.

What choices do customers have beyond the FCA scheme? 

Customers may opt out of the FCA scheme and pursue claims independently, while firms can offer full and final settlements outside the scheme, subject to specific conditions.

Participation in the scheme is not mandatory for customers. Customers may choose to opt out or decline to opt in, in which case firms are not bound to follow the scheme rules for that individual.

Customers who opt out remain free to pursue their claim through the court system, including under section 140A CCA. In a Court claim, the judge is not bound by the terms of the scheme or the FCA’s redress methodology.

Separately, the FCA proposes a mechanism allowing firms to make full and final settlement offers at any stage, including before taking steps under the scheme. That offer must contain certain prescribed information and be at least equal to the maximum redress available under the scheme or, if the firm chooses, be the total amount of commission and compensatory interest under the ‘Commission Repayment Remedy’. If the customer accepts the offer, no further action is required under the scheme. Notably, a determination made through the scheme itself does not automatically constitute full and final settlement.

Authored by Jonathan Chertkow, Louise Lamb, Tom Devine, Elizabeth Greaves and Nicole Ahlawat.