Compensation scheme starts for loans taken out after 1 April 2014

The Financial Conduct Authority's motor finance redress scheme begins on 30 June 2026 for loans taken out from 1 April 2014, the regulator has confirmed¹. A second implementation period starts on 31 August 2026 for agreements made earlier¹. The scheme covers motor finance loans taken out between 6 April 2007 and 1 November 2024¹.

The FCA says 12.1 million agreements made between 2007 and 2024 are eligible for compensation, fewer than under its original proposals, and that the average payout has increased to around £830 per agreement¹. It estimates 75% of eligible consumers will claim, which would mean total redress paid of £7.5bn¹. The eligibility criteria have been tightened, average compensation increased for older agreements and a minimum 3% compensatory interest rate per annum added¹. Payouts will be capped in around 1 in 3 cases¹.

Nikhil Rathi, chief executive of the FCA, said:

Compensation applies where borrowers were not told clearly that their dealer or broker set the interest rate to earn more commission through a discretionary commission arrangement, that the commission was high (at least 39% of the total cost of credit and 10% of the loan), or that the dealer or broker was using one lender or gave one lender the right of first refusal¹. The practice of discretionary commission arrangements was banned in 2021². Which? reports that compensation may be due where a high commission arrangement was 35% of the total cost of credit and 10% of the loan, a lower threshold than the FCA's published figure of 39%¹.

For most people compensation will be made up of two parts, 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 agreements¹. Interest is 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. Claims for high value loans, amounts higher than 99.5% of other loans that year, are not covered¹.

Why it matters for households

Lenders have three months from the end of the relevant implementation period to tell complainants whether they are owed compensation and how much¹. They have six months from the end of that period to contact people who have not complained but are likely to be owed money¹. Anyone not contacted has until 31 August 2027 to make a claim¹. Which? reports that the FCA says borrowers should hear back from their lender by 30 September 2026, that a lender has one month to pay once an offer is accepted, and that the FCA has said the average payout will be £700, with first payments in early 2026². The FCA's own published average is around £830 per agreement¹.

The FCA says consumers can choose not to take part in the scheme and go to court instead, where they may get more or less compensation, but that the outcome of a court claim is uncertain and many consumers could end up with less after legal fees¹. It 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 received¹. Which? reports that a claims management company or law firm could take as much as 30% of any compensation payout².

What happens next

The FCA says its compensation scheme has been legally challenged and that it will defend it robustly as lawful¹. It says 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 to people owed money under the scheme, but must comply with all rules that are not suspended¹. The FCA has established a dedicated supervisory team, led by a Director, to monitor whether firms are meeting the scheme's rules¹. If people disagree with their firm's decision, the Financial Ombudsman will be able to assess whether the scheme rules have been followed¹.