The motor finance redress scheme: commission compensation explained

The motor finance redress scheme is the Financial Conduct Authority's (FCA's) programme for compensating people whose car finance included commission that was not properly disclosed to them. Around 12.1 million agreements made between 2007 and 2024 are now eligible for compensation, and the FCA estimates the average payout at around £830 per agreement¹. If three quarters of eligible people claim, total redress paid would be £7.5 billion¹.

The scheme covers people who used car finance for a motor vehicle, for example a car, motorbike, van or campervan, between 6 April 2007 and 1 November 2024, including hire purchase agreements such as personal contract purchase (PCP)². It is free to complain, and the FCA has committed to an "easy to participate in" redress scheme³.

There is one important caveat. After the scheme launched, it was legally challenged, and the Upper Tribunal has suspended parts of it⁴. Until the legal process ends, lenders do not need to calculate or pay compensation to people owed money under the scheme⁴. The hearing is expected in December 2026 or February 2027, and if the scheme is upheld and the judgment is not appealed, payments are expected to begin in 2027².

Parts of the scheme are suspended by a legal challenge

The FCA launched the scheme to compensate eligible car finance customers who may have been treated unfairly⁴. But after launching, the scheme was legally challenged⁴. On 2 July 2026 the FCA confirmed that the Upper Tribunal has suspended parts of the scheme¹, and the Consumer Council for Northern Ireland describes the scheme as partially suspended following an order by the Upper Tribunal².

Which? reported in May 2026 that the FCA had received four legal challenges from three lenders and a consumer group⁵. The Upper Tribunal will hear the legal challenges in December 2026 or February 2027².

The suspension has a practical effect on anyone waiting for money. 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 rules that are not suspended¹. The scheme rules themselves record that the Tribunal has ordered that certain provisions are partially or wholly suspended until further order of the Upper Tribunal or final determination of the applications challenging the rules⁶.

What the motor finance redress scheme covers

The scheme exists because of the way commission was paid on car finance. The FCA's review, covering data from 32 million agreements, found widespread failings regarding how motor finance commission was disclosed⁷. The legal basis is section 140A of the Consumer Credit Act 1974: when there was a discretionary commission arrangement (DCA), high commission or a tied arrangement, and it was not adequately disclosed, this is likely to have created an unfair relationship².

The subject matter of the scheme is whether, in a scheme case, there was inadequate disclosure of any of the following: a discretionary commission arrangement, the payment of commission, a tied arrangement, or any other arrangement incentivising the credit broker to introduce consumers to that lender⁶.

There are two schemes, covering two periods²:

Both schemes came into force on 31 March 2026, the scheme effective date, and neither has an end date⁶. The scheme applies where the consumer was habitually resident in the UK at the time the agreement was entered into⁸.

The scale is large. 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, including £7.5 billion in redress and £1.6 billion to run the scheme⁹. Around 2 million new and second-hand car deals each year are bought using car finance agreements⁵.

The Financial Ombudsman Service (FOS) has a defined role under the scheme: it will only be able to look at whether your lender followed the FCA's motor finance redress scheme rules¹⁰. Its general guidance on complaints about commission explains that the new rules were announced on 30 March 2026 and cover certain motor finance agreements¹⁰.

Who is eligible, and which agreements are excluded

You may be owed compensation if you used car finance for a motor vehicle between 6 April 2007 and 1 November 2024². People will only be compensated if they were not told clearly that either their dealer or broker set the interest rate to earn more commission (a DCA), the commission was high, or a tied arrangement was used¹. In plain terms: you are covered if you were not clearly told that your dealer or broker could set a higher interest rate just to earn a bigger commission¹¹.

If you used finance to buy a vehicle before 28 January 2021, it is likely there was a commission arrangement on your deal³. Car finance arrangements made on or after 28 January 2021 are excluded, as are hire agreements such as personal contract hire³.

The exclusions in detail:

• Hire agreements, such as personal contract hire (leasing): excluded³
• Agreements made on or after 28 January 2021: excluded³
• No interest charged: you are not owed compensation under the scheme if you were not charged any interest²
• Small commission: excluded where the commission was £120 or less for agreements beginning before 1 April 2014, or £150 or less from 1 April 2014 to 1 November 2024². The scheme rules themselves set the exception at £120 or less for the earlier scheme⁶
• Business purposes: agreements for business purposes are excluded²
• High value loans: claims for amounts higher than 99.5% of other loans that year are not covered by the scheme¹
• Successors: the scheme does not apply to a successor who became the successor after the fixed term of the motor finance agreement expired⁶

There is also a cap on the amount of credit, which varies by the year the agreement was entered into¹²:

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, so it would not be a motor finance agreement for the scheme⁶. The threshold does not apply where the vehicle was constructed or adapted to enable a person with a disability to travel in it as driver or passenger⁶.

The scheme also covers agreements held by consumers who have since passed away; their beneficiaries may be able to claim².

How compensation is worked out: around £830 on average

The FCA estimates the average redress, per agreement, will be around £830². The FCA's own figure is that the average payout has increased to around £830 per agreement¹. Which? reported in May 2026 that the average payout is likely to be around £829⁵, and its consumer rights guidance says the average payout is expected to be just over £800¹¹. The figures are close together and all describe the same estimate; the FCA's own current figure is around £830¹.

For most people, compensation will be made up of two parts, the average of¹:

1. The commission paid
2. The estimated loss, based on a percentage discount of the interest (APR) they paid

The estimated loss is 17% of the interest paid for cases from April 2014, or 21% for loans made before that, to reflect the greater loss then¹.

The number of eligible agreements has changed as the scheme rules were finalised. Fewer agreements qualified for compensation, with around 12.1 million expected to be eligible, down from 14.2 million⁵. The FCA's figure is 12.1 million agreements made between 2007 and 2024¹.

For context on what the underlying borrowing looks like, the Financial Ombudsman Service notes that it is not uncommon for some car finance agreements to be as much as £500 each month over four years¹³.

Caps, interest and the most serious cases

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 year¹.

The cap exists so that no one is put in a better position than had they been treated fairly, and in around 1 in 3 cases compensation will be capped¹. Which? reported in May 2026 that some payments will be capped, with around one in three cases affected⁵.

The scheme also treats the most serious cases differently. Where the commission was very high, defined as 50% of the total cost of credit and 22.5% of the loan, and another relevant factor of unfairness existed, consumers receive the commission paid¹. Separately, where the commission was high, defined as at least 39% of the total cost of credit and 10% of the loan, and it was not disclosed, that is a ground for compensation¹.

The small commission exception in the scheme rules applies where the total amount of commission was £120 or less: a discretionary commission arrangement, high commission or tied arrangement is then not treated as a relevant arrangement⁶.

Do you need to do anything? Complained or not

The answer depends on whether you have already complained.

If you have already complained to your lender about car finance commission, you do not need to do anything new. Lenders will have 3 months from the end of the implementation period to inform complainants whether they are owed compensation and how much¹. The FCA has said that customers who have already complained should hear back from their lender by 30 September 2026³.

If you have not complained, you do not need to chase it. Lenders must contact people who have not complained and are likely owed money, and they have 6 months from the end of the relevant implementation period to do so¹. The FCA advises that you will be contacted by the lender within six months of the scheme starting³. When contacted, you will be asked if you would like your case reviewed, and you will have six months to decide³. Consumers must respond within six months if they wish to join the scheme².

The Financial Ombudsman asks people not to jump ahead: "Please wait until you hear from your lender before bringing a complaint to us."¹⁰

One point on timing: because parts of the scheme are suspended, lenders do not need to calculate or pay compensation until the legal process ends⁴. The contact and assessment process continues under the rules that are not suspended¹.

Deadlines for lenders and for you

The scheme was announced on 30 March 2026². The implementation period is 3 months beginning with the scheme effective date of 31 March 2026⁸, and the deadlines differ between the two schemes:

• 30 June 2026: implementation ends for loans taken out from 1 April 2014 (scheme two)¹
• 31 August 2026: implementation ends for those agreed earlier, from 6 April 2007 to 31 March 2014 (scheme one)¹

After that:

• Lenders have 6 months from the end of the relevant implementation period to contact people who have not complained and are likely owed money¹
• Lenders then have 3 months from the end of the implementation period to let those who have complained know whether they are owed compensation and how much¹
• Once you have responded to the lender, you will be told how much you are owed within three months³
• If you accept the offer, the lender has one month to pay you³

For people who are not contacted, the deadlines are:

• Your lender should contact you by end 2026 for post 1 April 2014 agreements, and by end February 2027 for agreements started between 6 April 2007 and 31 March 2014, if you do not complain¹
• Concerned consumers who are not contacted can still complain to their firm by 31 August 2027²
• If you do not receive a letter, you will have a year to claim once the scheme has started³

The scheme rules also set an internal deadline for lenders: an acknowledgment must be sent to the consumer within 7 days of receiving the response, in a durable medium, confirming the scheme case is being assessed under the scheme⁶. Lenders should conduct the assessment of limitation with reference to the position on 25 March 2026⁶.

Your options when you get a decision

When your lender responds, you have choices, and the order matters.

If you are unhappy with, or wish to query, your lender's response, go back to them and ask for a "redress determination"¹⁰. The Financial Ombudsman will not be able to look at your case until you have a redress determination, or the deadline for providing one has passed¹⁰.

If you remain unhappy after that, you can take the case to the Financial Ombudsman Service, which will look at whether your lender followed the FCA's motor finance redress scheme rules¹⁰. For cases that are out of scope of the redress scheme altogether, the Ombudsman's general process applies: you will need to complain to the financial business first¹⁰.

You can also choose not to take part in the scheme at all. Consumers can choose not to take part and instead take their case to court, where they may get more or less compensation than under the scheme, based on the facts of their case¹. Two things weigh on that choice. First, going to court means your own legal costs, which no scheme covers⁷. Second, the FCA estimates that without the scheme, the cost to lenders of dealing with complaints through the Ombudsman or courts would be over £6 billion higher¹.

If your complaint is about something other than commission, for example unaffordable lending, the Ombudsman's approach to unaffordable lending complaints applies instead; where credit has been used directly to fund the cost of a car, it would usually instruct the credit provider to take back the car and cancel any further amounts due¹³.

Claims firms, fees and scams

The scheme is free to access, and communications from lenders and the FCA must make that clear to consumers⁷. It is free to complain, and the FCA has committed to an easy to participate in scheme³. Claims management companies may charge up to 30% of any compensation paid⁷, and the FCA warns that if you use a claims management company or law firm, you could lose over 30% of any money you get¹.

The dedicated page on using a claims firm for a car finance commission claim sets out how these firms work and what to check before signing anything. The general guidance on complaining about a lender or finance company covers the free route.

Scammers are active in this area. They use adverts on social media and search engines to target people, and some are impersonating authorised firms and the FCA³. If you have been scammed, speak to your bank, building society or credit union, which can protect and reimburse victims of certain types of fraud, and report it to Action Fraud at www.actionfraud.police.uk¹⁴.

Finally, a point about protection if things go wrong with the lender itself. This type of borrowing is not covered by the Financial Services Compensation Scheme, so if your lender goes out of business you cannot claim the loan from the FSCS². The FSCS is the UK's compensation scheme for customers of authorised financial services firms that fail or stop trading, funded by a levy on authorised firms¹⁵. It covers deposits, insurance and investments, not car finance borrowing¹⁵. The page on lenders that have closed or stopped lending explains what happens to your loan in that situation.