On 3rd of August 2025, the Financial Conduct Authority (FCA) announced plans to formally consult on an industry-wide motor finance compensation scheme following a landmark Supreme Court judgment. This initiative is aimed at ensuring consumers who may have suffered due to undisclosed or unfair commission arrangements in motor finance receive appropriate redress.
Context & Rationale
The Supreme Court ruling upheld that certain commission practices especially in the notable Johnson case had been unfair under Section 140A of the Consumer Credit Act. As a result, the FCA is responding with a proposed structured redress scheme, targeting both discretionary commission arrangements (DCAs) and select non-DCA cases where lack of transparency caused unfair outcomes.
Scope & Timeline
- Customer eligibility likely spans agreements from 2007 onward, aligning with the Financial Ombudsman Service’s complaint remit.
- Compensation estimations suggest payouts averaging under £950 per contract, with total industry exposure projected at £9 billion to £18 billion.
- A six-week consultation period is expected to open early October 2025, with the scheme poised to launch in 2026.
Key Consultation Themes
The FCA consultation will seek firm input on:
Fairness criteria: How lenders should assess whether a broker–consumer relationship was unfair, including full commissions disclosure, tied relationships, and customer sophistication.
- Inclusion criteria: Whether both discretionary and non-discretionary commission types are within scope, and how to distinguish properly disclosed from improperly disclosed arrangements.
- Operational design: Scheme mechanics such as opt-in vs opt-out, compensation methodology (e.g., full commission + ~3% simple interest), and any de minimis threshold.
Implications for Credit Firms
- Preparation is essential: Firms should immediately undertake audit of historical records, model possible liabilities, enhance complaint handling capabilities and estimate redress provisions.
- Participation in consultation: Firms can help shape the scheme defining fairness criteria, timeframe cut-offs (potentially aligning with a six-year Consumer Credit Act limitation) and practicality measures.
Credit firms face both risk and responsibility: the risk of significant redress commitments and the responsibility to help design a fair, efficient scheme. By proactively auditing past practices, engaging in the October consultation and operationalising robust complaint handling processes, firms can help shape an outcome that balances consumer justice with a healthy motor finance market.
