FCA finalises revised motor finance compensation scheme

The Financial Conduct Authority has set out the final rules for its motor finance commission redress scheme, which comes into force on 31 March 2026¹. The scheme covers motor finance loans taken out between 6 April 2007 and 1 November 2024³. The FCA says 12.1 million agreements are now eligible for compensation, fewer than under its original proposals, and that the average payout has increased to around £830 per agreement³. It estimates that 75% of eligible consumers will make a claim, which would mean total redress paid of £7.5bn³.

The FCA said it made several changes in response to feedback from consumers, their representatives, firms, manufacturers and industry bodies³. It said the eligibility criteria have been tightened, average compensation increased for older agreements and a minimum 3% compensatory interest rate per annum added³. Payouts will be capped in around 1 in 3 cases³.

People will only be compensated if they were not told clearly that their dealer or broker set the interest rate to earn more commission (a discretionary commission arrangement, or DCA), that the commission was high, or that the dealer or broker was using a tied arrangement³. There are exceptions, including where the commission was £120 or less for agreements beginning before 1 April 2014 and £150 or less from that date³. Where the commission was very high and another relevant factor of unfairness existed, consumers will receive the commission paid³. For most people compensation will be made up of the average of the commission paid and the estimated loss, based on a percentage discount of the interest paid: 17% for cases from April 2014 and 21% for earlier agreements³. Interest will be paid based on the annual average Bank of England base rate per year plus 1%, at a minimum of 3% in any year³.

The scheme is split into two chapters in the FCA Handbook. CONRED 5 covers agreements entered into between 1 April 2014 and 1 November 2024, with an implementation period of 3 months beginning with the scheme effective date¹. CONRED 6 covers agreements entered into between 6 April 2007 and 31 March 2014, with an implementation period of 5 months². Both chapters state the scheme comes into force on 31 March 2026 and has no end date¹. High value loans, meaning amounts higher than 99.5% of other loans that year, are not covered by the scheme³.

Source: FCA³

Why it matters for households

Anyone who took out motor finance between 6 April 2007 and 1 November 2024 may be affected, though only those who were not clearly told about certain commission arrangements will be compensated³. People who have already complained, or who complain before the end of the relevant implementation period, will be compensated sooner³. Lenders will only contact people who have not complained if they are likely to be owed money, and have 6 months from the end of the relevant implementation period to do so³. Anyone not contacted has until 31 August 2027 to make a claim³.

The FCA says there is no need to use a claims management company or law firm, and that doing so could mean losing over 30% of any money received³. It has joined with the Solicitors Regulation Authority, Information Commissioner's Office and Advertising Standards Authority to launch a taskforce to tackle poor handling of motor finance claims by some claims management companies and law firms³.

The Financial Ombudsman Service says it will only be able to look at whether a lender followed the scheme rules, and that people should wait until they hear from their lender before bringing a complaint to it⁴. It says new rules for the scheme were announced on 30 March 2026⁴.

For people who took out motor finance before bankruptcy or discharge, any claim for redress belongs to the Official Receiver, which will submit a claim and any monies received will go to creditors⁵. Those who took out the agreement after bankruptcy ended, or whose bankruptcy was annulled, have the right to make the claim and keep the compensation⁵. People under a Debt Relief Order who receive redress that would take their total assets over £2,000 during the moratorium period should contact the Official Receiver⁵.

What happens next

The FCA's page records that the scheme has been legally challenged, that the Upper Tribunal has suspended parts of the scheme, and that until the legal process concludes lenders do not need to calculate or pay compensation, but must comply with all rules that are not suspended³. The FCA said it will defend the scheme robustly as lawful³. The FCA Handbook states that the Tribunal has ordered that certain provisions in CONRED 6 are partially or wholly suspended until further order of the Tribunal or until the final determination of those applications².

The FCA says people who have concerns should complain to their lender³. The Financial Ombudsman Service says it will not be able to look at a case until there is a redress determination or the deadline for providing one has passed⁴.