FCA redress schemes: how industry-wide compensation works

When something goes wrong with a financial product, the usual route is to complain to the firm and, if that fails, to the Financial Ombudsman Service. But sometimes a whole market has been sold in a way that left large numbers of customers out of pocket, and dealing with complaints one at a time would take years. For those cases the Financial Conduct Authority (FCA) has a separate power: it can make rules requiring firms to set up a consumer redress scheme, reviewing past business and paying compensation across the board.

The live example is motor finance. The FCA has launched a redress scheme for borrowers over commission paid on car finance agreements, which it estimates will cost lenders £9.1 billion, with £7.5 billion in redress¹. The average payout is around £830 per agreement². Parts of that scheme are currently suspended following a legal challenge, so lenders do not yet need to calculate or pay compensation while the process runs².

What an FCA redress scheme is and why the FCA uses one

A consumer redress scheme is a set of FCA rules that forces authorised firms to review their past sales or advice, identify customers who were treated unfairly, and pay them compensation, rather than waiting for each customer to complain. The power comes from section 404 of the Financial Services and Markets Act 2000: the FCA can make rules requiring authorised persons, electronic money issuers and payment service providers to establish and operate consumer redress schemes⁴. It can also impose a requirement on a firm to set up a scheme corresponding to, or similar to, a section 404 scheme⁴.

The power has limits, and they explain why it is used only occasionally. The FCA does not have the power to grant redress to consumers who have suffered loss simply because a contract term is unfair or insufficiently transparent; a scheme needs more than that, such as a rule breach causing loss to consumers, and in some cases the FCA must apply to court for restitution instead⁴. A government review of the Financial Ombudsman Service has proposed simplifying the test for a section 404 scheme and linking it to the FCA's operational objectives, so that the FCA's use of such schemes will be supported by a clearer framework⁵.

The FCA has used the power before. Its redress scheme for former British Steel Pension Scheme members required financial businesses to assess the transfer advice they gave, with the FCA even producing a calculator for businesses to work out whether customers were owed redress⁶. The motor finance scheme, described in the rest of this page, is the largest use of the power so far.

The motor finance redress scheme: around £830 average per agreement

The motor finance scheme exists to compensate eligible car finance customers who may have been treated unfairly over commission⁷. At the heart of it were commission arrangements between lenders and car dealers: the FCA's view, set out when it went ahead with the scheme, is that customers who were not told about the commission paid on their agreement may have been dealt with unfairly. The scheme requires lenders to identify affected agreements, work out what is owed, and contact customers.

The scale is unusual. The House of Commons Library reports that the FCA has launched a redress scheme for borrowers which it estimates will cost lenders £9.1 billion, with £7.5 billion in redress¹. For most people, the FCA says, compensation will be made up of two parts: the average of the commission paid, and the estimated loss². The average payout has increased to around £830 per agreement².

The scheme matters to consumers because it reverses the usual burden. Instead of each customer having to work out whether they were mis-sold to, prove it, and chase a payout, the lender must review its own records and come to the customer. The FCA publishes a list of lenders covered by the scheme, with each lender's complaint route, so a customer can find their firm and check how to raise a case⁷.

Who is covered by the car finance scheme and who is not

The scheme covers certain motor finance agreements³, and the scheme rules draw the boundaries by date, by the size of the commission, and by the size of the loan.

For agreements from the later period, the rules apply to agreements entered into during the period beginning with 1 April 2014 and ending with 1 November 2024⁸. For earlier agreements, the scheme rules set a threshold on the total amount of credit, and it rises by year:

Two further boundaries matter. Before 6 April 2008, a personal credit agreement providing credit exceeding £25,000 fell outside the definition of a regulated agreement under the Consumer Credit Act, and so would not be a motor finance agreement for the scheme at all⁹. And the scheme rules do not apply to a successor who became the successor after the fixed term of the motor finance agreement expired⁹.

The FCA's own summary of the scheme adds two exclusions. Claims for high value loans, meaning amounts higher than 99.5% of other loans that year, are not covered by the scheme². And agreements where the commission was small are excluded: the commission was £120 or less for agreements beginning before 1 April 2014, and £150 or less from that date².

How compensation is worked out: commission, interest and the cap

For most people, the FCA states, compensation will be made up of two parts: the average of the commission paid, and the estimated loss². The estimated loss is worked out as a percentage discount of the interest, the APR, that the customer paid: 17% for cases from April 2014 and 21% for earlier agreements, to reflect the greater loss in those years².

A cap then applies. Compensation is capped so that no one is put in a better position than they would have been in had they been treated fairly, and the FCA says that in around 1 in 3 cases compensation will be capped².

Interest is added on top. The FCA states that interest will be paid on compensation, based on the annual average Bank of England base rate per year plus 1%, at a minimum of 3% in any year².

The approach follows a pattern set by earlier redress exercises. In the British Steel pension scheme, the FCA produced a calculator for financial businesses to use for working out whether customers were owed redress under the scheme⁶, and the ombudsman has told firms to make redress calculations in line with FCA guidance, for example the pension review guidance updated for unsuitable defined benefit pension transfers¹⁰. In the PPI redress era, the ombudsman's approach included paying the consumer interest at 8% per year simple on each premium from the date it was paid until the date compensation is awarded¹¹, a reminder that interest is a standard component of redress, not an extra.

Legal challenge: parts of the scheme are suspended

After launching, the scheme was legally challenged⁷, and the Upper Tribunal has suspended parts of it². The scheme rules record the effect precisely: the Tribunal has ordered that certain provisions in the section dealing with the assessment of cases are partially or wholly suspended until further order of the Upper Tribunal or final determination of the applications challenging the rules⁹.

The practical effect for consumers is a delay, not a loss of entitlement. Until the legal process concludes, lenders do not need to calculate or pay compensation to people owed money under the scheme, but they must comply with all the rules that are not suspended². The FCA's consumer information says the same: until the legal process ends, lenders do not need to calculate or pay compensation to people owed money under the scheme⁷.

The challenge is not a sign that the scheme has been abandoned. The government's guidance on motor vehicle finance mis-selling, updated after the scheme was published on 30 March 2026, treats the scheme as the operative framework for dealing with the issue¹², and the FCA continues to list the lenders covered by it⁷.

Deadlines for lenders and for customers

The scheme rules impose tight timetables on lenders, and they matter to customers because they tell you when you are entitled to an answer.

For opt-in cases, once the lender receives a response it must, within 7 days, send the consumer an acknowledgment in a durable medium confirming the case is being assessed under the scheme, and within a period of 3 months beginning with the date the response is received, complete the other steps necessary to provide the complainant with a redress determination or provisional redress decision⁹. For complaints received before the end of the implementation period, the lender has 8 months beginning with the scheme effective date to complete the first step and provide the complainant with their first redress determination or provisional redress decision⁹.

Where evidence is missing, the timetable extends in the customer's favour. If a case has insufficient evidence, the lender must give the consumer at least 1 month to respond to the provisional redress decision and provide any relevant records and information⁹. If a credit broker does not respond within 1 month, or only partially responds, the lender must send a further communication providing a further 14 days to respond⁹. And where a consumer responds within 1 month stating they do not wish to have their case considered under the scheme, the lender must within 7 days acknowledge and explain the case will not be dealt with further⁸.

Two dates anchor the whole scheme. The rules were announced on 30 March 2026³, and the scheme rules direct that a lender should conduct the assessment of limitation with reference to the position on 25 March 2026⁹, the same date used in the earlier-period rules⁸. On the customer side, the FCA has said that for post 1 April 2014 agreements, customers who do not complain should be contacted by their lender by end 2026².

Do you need to complain, or will your lender contact you?

For most people with an eligible agreement, the answer is that the lender comes to you. The FCA has said that for post 1 April 2014 agreements, customers who do not complain should be contacted by their lender by end 2026². The ombudsman's advice to consumers is blunt on this point: please wait until you hear from your lender before bringing a complaint to the ombudsman³.

If you want to be active rather than wait, the FCA publishes a list of lenders covered by the scheme. You can search for your lender in the list and use the lender's complaint form, or download the FCA's template complaint letter or email, fill in your details, and send it⁷. Complaints already in the system are unaffected: the ombudsman says that complaints brought to it before 30 March 2026 are not affected by the scheme, and it will investigate them and give an answer in due course³.

The scheme's opt-in mechanics also shape what you do. Where the lender issues a provisional redress decision because it needs more from you, you have at least 1 month to respond with records and information⁹. Where you respond within 1 month saying you do not want your case considered under the scheme, the lender must acknowledge within 7 days and explain the case will not be dealt with further⁸. Nothing in the scheme obliges you to accept its outcome, as the next sections set out.

Claims companies and law firms: what using one costs you

Redress schemes attract intermediaries, and the motor finance scheme is no exception. Claims management companies and law firms offer to pursue compensation on a customer's behalf, typically for a share of whatever is recovered. The dedicated guide to claims management companies explains how their fees work and what to check before signing anything.

The key point for a scheme like this one is that the scheme does the work a claims company would otherwise do. The lender must review its own records, work out what is owed, and contact the customer². A customer who waits to be contacted, or who uses the FCA's own template complaint letter⁷, keeps the whole of any payout rather than paying a share of it to an intermediary.

If you do use a claims company and things go wrong, there is a route for that too. You can complain to the FCA if you are unhappy with the conduct of a claims company¹⁴. In Northern Ireland, Consumerline can refer complaints about lenders to the Trading Standards Service for investigation or to the Financial Conduct Authority, which authorises lenders¹⁵.

If you disagree with your lender's decision: the ombudsman and the courts

If you are unhappy with, or wish to query, your lender's response, the ombudsman's guidance is to go back to them and ask for a "redress determination"³. That determination is the gateway to everything else. The ombudsman will not be able to look at your case until you have a redress determination, or the deadline for providing one has passed³.

When the ombudsman does look at a motor finance case, its scope is narrow by design: it will only be able to look at whether your lender followed the FCA's motor finance redress scheme rules³. It is not a second opinion on whether the scheme's outcome was generous enough. Consumers may also choose to complain to the firm and seek redress from it, and refer the complaint to the Financial Ombudsman Service if the firm does not satisfy the complaint and it is appropriate to do so⁴.

The alternative route is court. Consumers can choose not to take part in the FCA's compensation scheme and instead go to court, where they may get more compensation², though they then carry the cost and risk of litigation themselves. The guides to small claims court in England and Wales, the simple procedure in Scotland and small claims in Northern Ireland cover the court route in each nation.

Where FSCS protection stops

The Financial Services Compensation Scheme (FSCS) is the safety net when a firm fails, and it interacts with redress in two ways: it can pay compensation a failed firm cannot, and it has its own limits on what it covers.

For lending, the historical position is weaker than for deposits. When the FCA took over consumer credit regulation, its policy statement recorded that there would be no FSCS cover for consumer credit activities, though this would be reviewed, in particular for the debt management sector¹⁶. So a redress payout owed by a failed lender is not automatically covered in the way a deposit would be. The pages on FSCS compensation limits and what the FSCS does not cover set out the position by claim type.

Where the FSCS does cover a claim, its payout rates vary. For PPI claims against firms that failed after 1 January 2010, it pays 90% of the total claim¹⁷. For pensions, it normally pays 90% of a claim with no upper limit, and 100% with no upper limit where the firm failed after 1 April 2019 and it was your pension provider¹⁸. Some insurance claims are excluded altogether: credit insurance, aviation and marine claims are not eligible for FSCS protection¹⁹.

The FSCS also coordinates with other schemes. Legislation allows the FSCS, where a claimant is entitled to payment under a comparable scheme or a government guarantee, to make a full payment of compensation and recover the whole or part of it from the other scheme²⁰. And when assessing the cost of paying compensation, the FSCS may have regard to the likely total cost arising out of the default, net of recoveries, not just the amounts payable to particular claimants²¹. Government-run schemes can sit alongside it: the LCF compensation scheme, available to bondholders who had not already received FSCS compensation, was administered by the FSCS and represented 80% of the compensation those bondholders would have received had they been eligible for FSCS protection²².

Funeral plans show the boundary in practice. If a plan holder passes away after their provider fails, before a replacement contract or compensation is secured, the FSCS may be able to help with the provision of a funeral²³. The customer's nominated representative or next of kin contacts the named funeral director in the original plan, then notifies the FSCS by phone, post or live chat²⁴. Elsewhere, the Financial Assistance Scheme allows members to nominate an eligible beneficiary to receive payments after they die²⁵.

Redress outside a scheme: what the ombudsman can order

Most consumers will never be part of a statutory redress scheme, but the ombudsman orders redress every day, and its powers are broader than a scheme's fixed formula. What it can order depends on the type of complaint:

• Unaffordable or wrongly assessed lending: it may ask the lender to pay compensation where it finds the customer experienced distress or inconvenience²⁶.
• Debt collection: remedies can include correcting a credit record, agreeing a repayment plan, changing the amount owed, or paying compensation for distress or inconvenience²⁷.
• Home credit: waiving or refunding interest, extra time to make missed payments, restructuring loans, or compensation for distress or inconvenience²⁸.
• Mortgage shortfalls: telling the lender to adjust the amount owed, set up a repayment arrangement based on the customer's current money situation, or in some cases stop seeking repayment entirely²⁹.
• Interest charged on mortgages: it may tell the lender to pay compensation for any distress or inconvenience where the lender has not done enough to help³⁰. Complaints about this go first to the lender, which has eight weeks to reply, and the ombudsman can then be asked to look at the case³¹.
• Insurance: it may ask the insurer to deal with a rejected claim, add interest to any claim that should have been paid, pay for further work, or pay compensation for distress or inconvenience³².

The ombudsman can help with complaints about a financial adviser or pensions provider regulated by the FCA³³, and with complaints about wrong advice from an FCA-regulated firm generally¹⁰. Its approach to redress follows FCA guidance where it exists, as its PPI approach shows¹¹. The pages on taking a complaint to the ombudsman and how to complain to a financial firm cover the process step by step.

Two wider points of context close the picture. The FCA's responsibilities include ensuring fair practice in consumer credit³⁴, and its past reviews have covered overdrafts, store cards and catalogue credit, home-collected loans and rent-to-own services³⁵, with ongoing monitoring that may include motor finance, guarantor loans and the Credit Information Market Study³⁵. Redress schemes are the exceptional tool; the day-to-day protections, the Consumer Duty, the ombudsman and the FSCS, are what most consumers will actually rely on.