FCA sets out its stall: Key messages from the motor finance redress consultation

In summary

• The FCA’s consultation outlines a structured redress process with clear categories: existing complaints, new complaints, paused complaints and self-referrals - each with specific timelines and opt-in/opt-out rules to ensure orderly compensation
• Lenders, not brokers, will be responsible for delivering redress. They must begin preparing now by reviewing data, identifying affected customers and ensuring operational readiness. Brokers will be required to support lenders in their preparations for delivering redress
• Compensation will be calculated using a standardised methodology, with most consumers receiving an average estimated overpayment plus interest
• Stakeholders have until 18 November 2025 to respond to the consultation. After which the FCA will publish final rules in Q1 2026, with redress payments expected to begin mid to late 2026

On 2 October 2025, The FCA’s motor finance consumer redress scheme consultation confirmed its commitment to delivering a comprehensive and fair redress scheme. Nikhil Rathi, FCA Chief Executive, stated: “Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it’s time their customers get fair compensation.”

The FCA emphasises that the scheme should be simple, cost-effective and accessible, with no need for claims management companies or legal representation. It also acknowledges the complexity of balancing fairness, timeliness and market integrity, but insists that consumers must be compensated in an orderly and consistent manner.

The FCA’s proposed scheme targets motor finance agreements where consumers may not have been given adequate information about the financial relationship between lenders and brokers, often car dealers. These undisclosed arrangements are central to the regulator’s concerns about unfairness. Notably, regulated consumer hire agreements are excluded from the scheme, as the unfair relationship provisions under section 140A of the Consumer Credit Act do not apply to them.

Under the scheme, compensation will only be available where at least one of the following arrangements was not properly disclosed to the customer:

• Discretionary commission arrangements (DCAs): These allowed brokers to adjust the interest rate charged to the customer in order to increase their own commission
• High commission structures: Where the broker received commission exceeding 35% of the total cost of credit or 10% of the loan amount
• Exclusive or contractual ties: Arrangements that gave lenders exclusive or near-exclusive rights to provide credit through specific brokers

The FCA has also introduced a presumption of non-disclosure. If firms lack evidence of what was disclosed to the customer, they must assume that adequate disclosure did not occur. While there may be rare cases where firms can prove that non-disclosure did not result in unfairness, the burden of proof lies with the lender.

While the FCA proposes a presumption of unfairness, where key features of lender-broker arrangements were not disclosed, it does allow lenders to challenge this presumption in exceptional circumstances. Specifically, a lender may demonstrate that no unfair relationship existed if they can provide clear and credible evidence of one of the following:

• That the relevant arrangement (such as a discretionary commission, high commission structure or exclusive tie) was adequately disclosed to the customer at the time of agreement
• In cases involving only a discretionary commission arrangement, the lender can show that the broker selected the lowest possible interest rate at which they would not have earned additional commission, indicating no financial incentive to inflate the cost
• That although disclosure was lacking, the customer was sufficiently financially sophisticated to understand the nature of the arrangement and its implications without explicit explanation

However, the FCA is clear that these rebuttals must be supported by documented evidence and, where such records are missing or incomplete, firms must assume that disclosure was inadequate and proceed with redress accordingly.

While the final design is still under consultation, the FCA has outlined a structured redress process:

Existing complaints: These consumers should be contacted by lenders within 3 months of the scheme’s start and automatically included unless they opt out. Opting out is final.

New complaints: Consumers who have not yet complained will be contacted within 6 months, where firms can identify them, and invited to opt in.

Self-referral option: Consumers who are not contacted but believe they’re eligible can request a review at any time within one year of the scheme’s launch.

Paused complaints: Many complaints have been paused since January or December 2024, but firms were still expected to investigate. These cases should be resolved promptly once the scheme goes live.

Exclusions:

• Consumers who have already received compensation for the same issue will be excluded
• Complaints already with the Financial Ombudsman Service (FOS) will be resolved by the FOS, not through the scheme
• Consumers whose complaints were rejected and not escalated to the FOS will be invited to opt in

In addition, the FCA has detailed that firms will reassess previously rejected complaints, especially those dismissed solely because they didn’t involve DCAs.

With regards to financial redress calculations, the FCA proposes two levels of compensation. In rare, serious cases—similar to the Johnson ruling—consumers would receive the full commission paid plus interest. For most other cases, compensation will be based on an average estimated overpayment, plus commission and interest.

Interest will be calculated using the Bank of England base rate plus 1%, and consumers can challenge the amount if they have evidence it is unfair. 

The FCA proposes that lenders—not brokers—should deliver the scheme, as this will be simpler and more efficient. Since there are far fewer lenders than brokers, this approach should ensure faster and more consistent redress. Brokers will be required to cooperate and provide necessary information to lenders.

The FCA has already written to CEOs of motor finance lenders and brokers, outlining the preparatory steps expected both now and once the scheme begins. Firms will need to:

• Identify and contact affected consumers accurately
• Gather information to assess eligibility and liability
• Calculate compensation correctly and pay it promptly
• Avoid unnecessary delays at any stage of the redress process

The FCA has made it clear that data gaps will not be tolerated, and that firms must demonstrate transparency, governance and readiness.

The FCA’s consultation paper largely aligns with industry expectations following the Supreme Court’s ruling and the regulator’s earlier statements. The core principles—fairness, simplicity and consistency—were anticipated, and the focus on discretionary commission arrangements (DCAs) as the central harm is consistent with prior messaging.

However, the level of prescription in the proposed scheme is notable. The FCA has defined:

• Eligibility criteria, including the three specific undisclosed features
• A presumption of non-disclosure where records are missing
• A standardised redress calculation methodology, rather than leaving firms to develop their own

This reflects a regulator that is not only determined to ensure redress but also to control the process tightly, likely to avoid the inconsistencies and delays seen in past remediation exercises.

The FCA has laid out a clear and ambitious timeline for the scheme’s development and implementation:

• The consultation period is now open and will close on 18 November 2025. During this time, stakeholders—including lenders, brokers, consumer groups and legal experts—are invited to provide feedback on the proposed rules and methodology
• Following the consultation, the FCA intends to publish a final policy statement and rules in Q1 2026. This will confirm the scope of the scheme, the redress calculation method and the operational requirements for firms
• Once the rules are finalised, firms will be expected to begin contacting eligible customers and reassessing complaints. The FCA anticipates that redress payments will begin in mid to late 2026, depending on the complexity of implementation and any legal or logistical challenges that arise

The regulator is moving quickly to provide clarity and certainty, but it also acknowledges that successful delivery will require industry-wide coordination, robust data management and a commitment to treating customers fairly. firms are encouraged to begin preparing now—reviewing historical records, assessing exposure and building operational capacity to meet the scheme’s demands.

We help firms understand the FCA’s proposals—what’s in scope, what’s not and what it means for your business. Our team can walk you through the key components of the consultation and help you identify the areas most relevant to your operations.

We support early-stage operational planning, helping you think through data readiness, governance and customer communications. Even before final rules are published, and as the FCA’s accompanying ‘Dear CEO’ letter requires, we can help you identify “no regrets” actions which will be needed regardless of the final wording, so you can get ahead.

Many businesses have concerns about data availability and validity to support the scope of these guidelines. We can forensically capture the data you have, to provide an independent view on your data's limitations, while delivering an agile analytical service to robustly apply the guidelines. This enables you to maintain high regulatory confidence from the start.

We can assist in drafting or reviewing your firm’s formal response to the FCA, ensuring your voice is heard and your concerns are clearly articulated.