FCA Motor Finance Redress Scheme 2026: What You Need to Know
The Financial Conduct Authority's proposed motor finance redress scheme is shaping up to be one of the most significant consumer compensation exercises since the Payment Protection Insurance (PPI) programme, which paid out over £38 billion between 2011 and 2020. MotorRedress (www.motorredress.co.uk) has been monitoring regulatory developments closely, and this guide explains what the FCA scheme will likely involve, when it will launch, and how it affects your right to claim.
Background: Why the FCA Is Intervening
The FCA's involvement in motor finance redress stems from a market study it launched in 2019 and a subsequent review in 2021. The regulator found that discretionary commission arrangements (DCAs) — under which car dealers could earn higher commissions by setting higher interest rates — were systematically harmful to consumers. In January 2021, the FCA banned DCAs for all new motor finance agreements.
However, banning DCAs going forward did nothing for the millions of consumers who had already been overcharged under agreements written between 2007 and 2021. The question of what to do about historical mis-selling was left unresolved — until the Court of Appeal ruling in Johnson v FirstRand in October 2024 changed the legal landscape fundamentally.
The October 2024 Court of Appeal Ruling
In October 2024, the Court of Appeal ruled in three linked cases — Johnson v FirstRand Bank, Hopcraft v Close Brothers, and Wrench v FirstRand — that:
- Car dealers acting as credit brokers owed customers a fiduciary duty, not merely a general duty of fair dealing.
- Receiving a commission from the lender without the customer's fully informed consent constituted a breach of that fiduciary duty.
- The appropriate remedy was rescission or disgorgement of the full commission — a significantly more generous standard than the FOS had previously applied.
This ruling triggered immediate market panic. Lloyds Banking Group (which owns Black Horse, the UK's largest motor finance lender) saw its share price fall sharply. Close Brothers suspended its dividend. Major lenders began setting aside billions in provisions.
[2025] UKSC 33: The Supreme Court Confirms
The lenders appealed to the Supreme Court, which issued its judgment in January 2025 as [2025] UKSC 33. The Supreme Court broadly upheld the Court of Appeal's findings, confirming:
- A credit broker acting in a capacity that creates a conflict of interest cannot receive a secret commission without the borrower's fully informed consent.
- Where a secret commission has been paid, the borrower is entitled to disgorgement of that commission plus compensation for any excess interest paid.
- The disclosure standard required for "informed consent" is high — generic references to the possibility of commission do not suffice.
The Supreme Court did, however, add nuance on the question of what constitutes a "secret" commission in different factual circumstances, which means individual cases will still require fact-specific analysis. This is one reason the FCA's proposed redress scheme matters: it aims to create a standardised, mass-redress mechanism rather than requiring each of 14.2 million consumers to pursue individual litigation.
FCA Consultation Paper CP25/27
Following the Supreme Court ruling, the FCA published Consultation Paper CP25/27 in Q2 2025. This paper sets out the FCA's proposed framework for a formal redress scheme. Key elements include:
1. Scope of the Scheme
The proposed scheme would cover motor finance agreements — both PCP and HP — where:
- A DCA was in place between the lender and the dealer
- The agreement was written between 6 April 2007 and 27 January 2021
- The customer was a retail consumer (not a business)
2. Complaint Handling Pause Extension
The FCA extended its pause on motor finance complaint handling to at least December 2025. This means that firms are currently not required to respond substantively to complaints about DCAs — but the clock on FOS time limits has been paused correspondingly, so customers are not losing their rights.
3. Proposed Redress Calculation
Under CP25/27, the FCA is consulting on a methodology that would calculate redress as:
Commission received by dealer + Excess interest paid by customer compared to the rate that would have been charged absent the DCA, plus 8% simple interest on the total from the date of each payment to the date of redress.
This formula is broadly aligned with the Court of Appeal's approach, though the FCA is seeking industry feedback on practical implementation challenges.
4. Who Pays
Redress obligations fall on the lender (not the dealer, who may no longer be in business). Lenders are required under the Consumer Credit Act to be responsible for the conduct of their appointed representatives, which includes car dealers acting as credit brokers.
5. Timeline
The FCA's indicative timeline under CP25/27 is:
- Late 2025: Consultation closes, FCA publishes final rules
- Early 2026: Redress scheme formally opens
- 2026–2027: Mass redress payments to eligible consumers
How Is This Different from PPI?
The motor finance redress exercise shares structural similarities with the PPI programme but has some important differences:
| Feature | PPI | Motor Finance DCA |
|---|---|---|
| Total affected products | ~64 million | ~14.2 million |
| Estimated total redress | £38 billion | £8.2 billion (FCA estimate) |
| Average per claim | ~£1,000–£2,000 | ~£700 |
| Proactive contact by firms | Required | Likely under FCA scheme |
| Claims deadline | August 2019 | TBC (expected 2027–2028) |
| Legal basis | Mis-selling / suitability | Secret commission / fiduciary duty |
The legal basis for motor finance claims is in some respects stronger than for PPI, because the Supreme Court's ruling on fiduciary duty creates a relatively clear entitlement to disgorgement once the factual elements are established.
What the FCA Scheme Means for You
If you have not yet complained
You should register your interest with a lender or regulated CMC now, even before the formal scheme opens. This creates a paper trail and ensures you are on the lender's radar when the scheme commences. You will not lose your claim by waiting — the FCA has suspended time limits — but early registration puts you at the front of the queue.
If you have already complained and received a rejection
Your complaint has not been finally rejected. Under the complaint pause, lenders were permitted to issue provisional decisions, but these are not binding. Once the scheme opens, your complaint will be reassessed under the new methodology.
If you received a settlement before October 2024
You may have grounds to reopen your claim if the settlement was reached on the old FOS basis rather than the disgorgement basis established by the Supreme Court. This is complex territory and worth specialist advice.
If your lender has gone into administration
Several smaller motor finance firms have faced financial difficulty as a result of DCA liabilities. The Financial Services Compensation Scheme (FSCS) provides protection for eligible claims up to £85,000, which covers the vast majority of individual motor finance claims.
Which Lenders Are Covered?
The FCA scheme will cover all regulated motor finance lenders who operated DCAs. The major players include:
- Black Horse (Lloyds Banking Group)
- Santander Consumer Finance
- Close Brothers Motor Finance
- FirstRand (including MotoNovo Finance and Aldermore)
- BMW Financial Services (GB)
- Volkswagen Financial Services (UK)
- Mercedes-Benz Financial Services
- Toyota Financial Services
- Honda Finance Europe
- Barclays Partner Finance
Do You Need to Do Anything Right Now?
The honest answer is: the sooner you act, the better — not because you will lose your rights (the pause protects them), but because:
- Evidence gathering takes time. Lenders must respond to Subject Access Requests (SARs) within 30 days, and the volume of SARs means response times are increasing.
- The mass redress queue will be long. When the scheme opens, tens of millions of claims will be processed simultaneously. Earlier submitters tend to receive payments sooner.
- Interest accrues in your favour. The redress formula includes 8% simple interest per annum from the date of each payment — the longer the period, the larger the interest component.
Conclusion
The FCA's motor finance redress scheme represents a once-in-a-generation opportunity for UK consumers to recover money that was taken from them through hidden dealer commissions. With £8.2 billion estimated at stake and 14.2 million affected contracts identified, the scale of the exercise is extraordinary. The legal foundations — cemented by [2025] UKSC 33 — are robust, and the regulatory framework is being purpose-built to ensure consumers can access redress without needing to litigate individually.
To find out whether your agreement is covered, visit MotorRedress for a free eligibility assessment.
This article is for educational purposes only. Compensation amounts vary. Eligibility criteria apply.
Originally published on MotorRedress
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