Motor finance commission redress scheme: FCA’s proposed compensation scheme revs up

On 7 October 2025, the FCA published its highly anticipated consultation paper regarding the motor finance commission redress scheme. The FCA has estimated that this will affect 14 million credit agreements, with the average payout of £700 per agreement (down from the projected £900). The overall compensation picture is £8.2bn.

The FCA’s consultation rides on the back of the Supreme Court decision in Johnson v FirstRand Bank. Broadly, the Supreme Court held that fairness was key to determining if commission was correctly disclosed in credit agreements – and that a variety of factors would need to be examined to determine if an agreement was indeed fair or unfair under the Consumer Credit Act. Factors to be considered included customer sophistication, commission vs the cost of the actual credit and how the arrangement was disclosed.

The FCA argued in its press release on 7 October that motor finance companies and their brokers did not follow the regulations in force at the time by failing to disclose important information relating to commissions in their agreements. This in turn led to the creation of an unfair relationship, “with consumers denied the chance to negotiate or find a better deal and, in some instances, paying more for their loan”.

The reach of the proposed scheme is vast. It covers all motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was payable by a lender to a broker.

The FCA is in consultation now – and the scheme is yet to be finalised. However, there has yet to be any real challenge to the FCA’s position, and it is likely that the judicial system is keen to back the FCA’s vision of keeping these claims out of court due to the scale of affected agreements.

For lenders and brokers, the race is now on. Although brokers sit outside of the redress, the FCA has called for them to be proactive, timely and cooperative with lenders’ requests for information and customer details.

For lenders, the task is vast. In an attempt to circumvent claims management companies (CMCs), the FCA proposes making the scheme lender-led. It will be the lenders’ responsibility to identify contracts that fall within the scheme – going back to 2007. There is no de-minimis level, and the scheme captures all regulated lending relating to motor vehicle finance. This is likely to capture plant and machinery, motor homes and tractors – although static caravans are specifically excluded – again expanding the reach far and wide.

Lenders will need to delve through their book and identify any agreements which are then deemed “unfair”. These are agreements which contain:

• a discretionary commission arrangement; or
• a high commission arrangement (35% of the total cost of credit and 10% of the loan); or
• a contractual arrangement or tie between the lender and broker, which provided exclusive or near exclusive rights to lenders to provide credit.

From here, it is for the lenders to actively track down their customers, past and present, and ask if they want to participate in the scheme.

The FCA has been clear that all affected should receive the same fair treatment, regardless of customer sophistication, the sums involved and the changing FCA rules and legislation in place between 2007 and 2004. There is no defence for lenders to argue proportionality and therefore a heavy burden is likely coming their way. Effectively, the FCA is approaching this as a “one size fits all” redress. In addition, the FCA is running a high-profile campaign to target consumers, so we are expecting those affected to be ready and alert to the fact they are entitled to redress. We expect this to lead to further pressure on lenders and brokers alike.

The scheme has been proposed in the name of fairness. Ensuring a just outcome for vulnerable customers, bringing justice to those affected by hidden payouts and keeping CMCs at bay. The question is, is this at the expense of practicality, proportionality and a stranglehold for an industry already affected by the global economic downturn? It is a tough balancing act.

We will keep you updated as the consultation gets underway. For now, for those lenders and brokers effected, we would be happy to guide you through the consultation, identify your next steps and help find the resource needed to prepare for redress.