The Financial Conduct Authority (FCA) is consulting on an industry-wide scheme to compensate motor finance customers who were treated unfairly between 2007 and 2024.
Its extensive review, covering data from 32m agreements, found widespread failures to adequately disclose the existence and nature of commission and contractual ties between lenders and brokers.
On 1 August 2025, the Supreme Court found a lender acted unfairly – and therefore unlawfully – because of the high, undisclosed commission paid to the broker and the failure to disclose a contractual tie. On 17 December 2024, the High Court ruled that the Financial Ombudsman was entitled to find that a dealer and lender did not adequately disclose a discretionary commission arrangement and that meant the relationship between the lender and the borrower was unfair.
The FCA says that there is therefore now sufficient legal clarity to move ahead with a compensation scheme.
It is anticipated that the majority of motor finance agreements will not qualify for compensation. The FCA estimates 14.2m agreements – 44% of all agreements made since 2007 – will be considered unfair because they involve inadequate disclosure of one or more of the following:
- a discretionary commission arrangement
- high commission (where the commission is equal to or greater than 35% of the total cost of credit and 10% of the loan)
- contractual ties that gave a lender exclusivity or a right of first refusal.
The FCA proposes that compensation is calculated in a way which balances the Supreme Court’s approach and its evidence of consumer loss, to provide fairness and consistency.
Views on the FCA’s proposals and potential alternatives are welcomed, including:
- Extending the complaint handling rules – respond by 4 November 2025.
- Our redress scheme proposals – respond by 18 November 2025.