FCA Proposes Motor Finance Compensation Scheme Worth an Estimated £8.2 Billion

The proposals are set out in consultation paper CP25/27 and follow the UK Supreme Court's judgment of 1 August 2025 in the motor finance commission appeals.

What the scheme would cover

The scheme would apply to regulated motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker. The consultation identifies three types of arrangement that may give rise to an unfair relationship: discretionary commission arrangements, high commission arrangements and tied arrangements.

How it would work

Lenders would pay compensation, with the FCA monitoring firms and the Financial Ombudsman Service assessing disputes where customers disagree with a firm's decision. Once the scheme goes live, lenders would contact customers who have already complained, and their cases would be reviewed if they do not respond within one month. Customers who have not complained would be contacted within six months of the scheme starting and have six months to opt in. Borrowers who cannot be traced would have one year from the start of the scheme to claim directly from their lender.

Customers who complained before the scheme starts could opt out, in which case their complaint would go to the Ombudsman. The FCA encouraged consumers to complain to their lender now using its template letter, noting they do not need a claims management company or law firm, which could take a significant share of any compensation.

What happens next

The FCA said compensation could start to be paid in 2026, once final rules are made. Lenders and brokers should model their exposure under the proposed criteria and prepare customer contact, data and complaint handling processes before the motor finance compensation scheme goes live.

Sources

• Financial Conduct Authority: 14m unfair motor loans due compensation under FCA-proposed scheme
• Financial Conduct Authority: CP25/27 Motor finance consumer redress scheme