FCA motor finance redress scheme consultation

Regulatory update – FCA motor finance redress scheme consultation – 8th October 2025

Background

The Financial Conduct Authority (FCA) has proposed a redress scheme to address widespread concerns about undisclosed commission arrangements in motor finance agreements. This follows a landmark Supreme Court ruling in August 2025, which clarified that certain commission structures – if not disclosed – could create an unfair relationship under the Consumer Credit Act.

The scheme is designed to provide compensation to consumers who entered into motor finance agreements between 6 April 2007 and 1 November 2024, where commission was paid by lenders to brokers and key details were not disclosed.

Scope and eligibility

Consumers may be eligible for compensation if they were not informed of at least one of the following:

• Discretionary commission arrangements (DCAs): Brokers could adjust interest rates to increase their commission.
• High commission structures: Commission rates of 35% of the total cost of credit and 10% of the loan.
• Exclusive broker-lender ties: Arrangements that limited consumer access to alternative credit options.

A particularly contentious feature of the scheme is that where evidence of disclosure is missing, lenders must assume non-disclosure occurred. This means that in order to challenge a customers claim for redress the firm must provide firm evidence of effective disclosure.

Compensation estimates

• Average compensation: Approximately £700 per agreement.
• Total redress costs: Estimated at £8.2 billion, rising to £11 billion including operational costs.

This lower-than-expected average payout may reduce the likelihood of firms disputing claims, especially given the £650 Financial Ombudsman Service (FOS) fee per case, regardless of outcome.

Redress process

• Existing complaints:
  Consumers who have already complained will be contacted first. If they do not respond within one month, lenders will proceed with a review. These cases are expected to be resolved more quickly.
• New complaints:
  Lenders will contact other eligible consumers within six months of the scheme’s launch. Consumers will have six months to opt-in.
• Unreachable consumers:
  Those not contacted (e.g. due to outdated records) will have one year from the scheme’s start to submit a claim directly.
• Self-service option:
  Consumers can submit complaints themselves using FCA-provided templates, avoiding the need for claims management firms or legal representation.

How firms are expected to calculate redress

1. Identify eligible agreements
   Firms must first determine which motor finance agreements involved:
   • Discretionary commission arrangements (DCAs)
   • High commission levels
   • Exclusive broker-lender ties undisclosed to the consumer.
2. Estimate financial detriment
   The redress amount will be based on the excess cost paid by the consumer due to the undisclosed arrangement. The FCA is likely to prescribe fixed or formula-based redress rates for most cases to streamline the process. Firms must maintain clear records of how redress was calculated, including assumptions made where data is missing. The FCA has stated that lack of historical data will not be accepted at face value – firms may be required to work with third parties (e.g. credit agencies) to reconstruct records.

Oversight and dispute resolution

• Consumers can escalate disputes to the Financial Ombudsman Service. Firms will however be responsible for costs associated with this in the usual way.
• Those outside the scope of the scheme may still pursue claims in court, though this route is slower, riskier, and potentially more costly.

The FCA will monitor firm compliance with the scheme. The FCA’s proposed motor finance redress scheme will require senior management attestations to ensure accountability and oversight. Specifically, firms will need senior leaders to formally confirm that their organisation is complying with the scheme’s rules, including how complaints are assessed, redress is calculated, and communications with customers are handled. These attestations are intended to reinforce governance standards and ensure that redress is delivered fairly, consistently, and in line with regulatory expectations.

It is vital therefore that firms put in place robust oversight processes to ensure that they are compliant with scheme rules and that Senior Management can make accurate and truthful attestations based on solid evidence.

Dear CEO letters

The FCA has also issued 3 ‘Dear CEO’ Letters to;

1. Motor finance lenders
2. Motor finance brokers
3. Claims Management Companies (CMCs)

These letters set out the FCA’s expectations ahead of the proposed redress scheme’s launch in early 2026. Lenders and brokers were instructed to begin preparatory work immediately, including identifying affected customers, gathering relevant data, and ensuring operational readiness to deliver compensation efficiently. The FCA emphasised the need for accurate assessments, timely payments, and clear communication with consumers.

The letter to CMCs warned against poor practices, including misleading advertising and excessive fees, and reinforced that consumers can submit claims independently using FCA resources. The regulator made clear it will monitor compliance closely and take action where necessary to uphold the integrity of the scheme.

Implications for firms

• Operational demands:
  Firms must immediately prepare for large-scale customer outreach, eligibility assessments, redress calculations, and complaint handling.
• Strategic considerations:
  Given the relatively low average compensation, firms may prioritise forensic reviews only for higher-value cases.
• Support from Huntswood:
  Huntswood is well-positioned to assist lenders with scheme implementation, having already presented detailed proposals to several firms. Our capabilities include:
  • Data analysis and case triage
  • Customer engagement and communications
  • Complaint resolution and redress delivery
  • Oversight and monitoring.

Key milestones and timetable

1. Consultation period
   • Launch date: 7 October 2025
   • Closing date: 18 November 2025
   • During this six-week period, the FCA is gathering feedback from stakeholders including lenders, brokers, consumer groups, and claims management firms.
2. Finalisation of rules
   • Expected: Late 2025 / Early 2026
   • Following the consultation, the FCA will publish final rules and guidance for firms, including redress calculation methodology, customer outreach requirements, and governance expectations.
3. Scheme launch
   • Target date: Q1 2026
   • The scheme is expected to go live in early 2026, triggering the start of operational activity across the industry.

Implementation timeline for firms

Within 3 months of scheme launch

• Lenders must contact customers who have already complained.
• If no response is received within one month, firms must proceed to review the case automatically.

Within 6 months of scheme launch

• Lenders must contact customers who haven’t yet complained.
• These consumers will have 6 months to opt-in to the scheme.

Within 12 months of scheme launch

• Consumers not contacted (e.g. due to outdated records) can submit a claim directly to their lender.
• The FCA will run an awareness campaign to support this process.

Operational readiness expectations

• Firms are expected to begin preparatory work immediately, including:
  • Identifying in-scope agreements
  • Reconstructing historical data
  • Designing redress calculation models
  • Establishing governance and oversight structures
• The FCA has made clear that lack of data will not be accepted as a reason to delay or deny redress.

Next steps for stakeholders

• Review the FCA consultation paper and prepare feedback by 18 November 2025.
• Accelerate internal planning for scheme implementation, including resource allocation and operational readiness.
• Engage with partners like Huntswood to ensure scalable and compliant

Support from Huntswood: Huntswood, by virtue of its extensive experience of designing, building and running large-scale remediation programmes in the past such as PPI, and its current experience of working with a number of motor lenders, is well-positioned to assist lenders with scheme implementation. Our capabilities include:

• Data analysis and case triage
• Customer engagement and communications
• Complaint resolution and redress delivery
• Oversight and monitoring.

Learn more about how Huntswood can help