FCA launches consultation on proposed car finance redress scheme

The Financial Conduct Authority (FCA) opened a consultation on 7 October 2025 on a proposed industry-wide redress scheme for motor finance customers who were overcharged on car finance deals taken out between April 2007 and November 2024¹. The consultation was due to run until November, with the scheme expected to start in early 2026¹. The FCA had announced plans to consult in March 2025, saying it would set out next steps for complaints six weeks after the Supreme Court's decision¹.

The scheme follows a long sequence of regulatory and court action. The FCA banned discretionary commission arrangements (DCAs) in January 2021¹. It opened an investigation into car finance mis-selling in January 2024, focused on DCAs, and paused complaint handling¹. On 25 October 2024 the Court of Appeal ruled in favour of three borrowers complaining against Close Brothers and FirstRand Bank, finding it unlawful for car finance companies not to inform customers of commission earned, whether discretionary or a fixed percentage¹. The Supreme Court heard the appeal in April 2025 and, on 1 August 2025, overturned that decision, siding with the lenders and finding they were effectively not liable for hidden commission payments to dealers¹. The FCA had extended its complaints pause to cover all commission types, not just DCAs, from 26 October 2024¹.

The FCA has since published the scheme in full, on 30 March 2026, after changes following feedback from consumers, firms and industry bodies through the 2025 consultation¹. Fewer agreements qualify than first proposed: around 12.1m are expected to be eligible, down from 14.2m¹. The average payout is likely to be around £829¹. The FCA estimates the scheme could cost around £7.5bn if 75% of eligible customers claim¹. On 1 May 2026 the FCA confirmed it had received legal challenges to the scheme from Consumer Voice (a limited company), represented by Courmacs Legal Ltd, and three from lenders: Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance¹.

Why it matters for households

Loans taken out between 6 April 2007 and 1 November 2024 are covered if the borrower was not clearly told that the dealer or broker could set a higher interest rate to earn more commission, that the commission was at least 10% of the loan or 39% of the total cost of credit, or that the dealer worked with only one lender¹. Some cases are excluded: commission of £120 or less for agreements beginning before 1 April 2014, or £150 or less from that date; where no DCA was used to earn discretionary commission; where no interest was charged; and high-value loans above 99.5% of other loans that year, though those borrowers can still complain to firms and the Financial Ombudsman Service¹. Compensation has two parts for most people: a refund of commission paid, and an estimated loss amount¹. The FCA has said compensation will not put anyone in a better position than if they had been treated fairly, so some payments will be capped, affecting around one in three cases¹. Claims management firms may take as much as 30% of an award¹.

What happens next

The pause on firms handling motor finance complaints ends on 31 May 2026¹. Shawbrook states that under FCA rules it has until 31 May 2026 to give a final response to motor finance commission complaints, and that the FCA has said it will not bring that deadline forward². Complaints about leasing arrangements are excluded from any potential redress scheme, and firms had to start sending final responses from 5 December 2025, with responses expected by 29 January 2026². Once the preparation period ends, lenders have three months to tell customers whether they are owed money and how much, or six months after the preparation period ends under the current plan¹. Customers not contacted have until 31 August 2027 to claim, with a deadline of 30 June 2026 for loans taken out from 1 April 2014¹. The FCA has said customers who think they were affected should still complain to their lender¹.