FCA outlines potential redress scheme for motor finance complaints

Introduction

The Financial Conduct Authority (FCA) has released a detailed update on its ongoing review into historic motor finance commission arrangements. The update sets out what a potential redress scheme could look like, depending on the outcome of the Supreme Court judgment expected sometime in July 2025.

The FCA has made it clear: if it concludes that consumers have lost out, a formal consultation on an industry-wide redress scheme is likely to follow.

Background: Why this matters

Before January 2021, some motor finance lenders allowed brokers (typically car dealers) to adjust the interest rates offered to customers. The higher the rate, the more commission brokers received, a practice known as a discretionary commission arrangements (DCA).

Since then, there has been a high number of complaints from customers about firms failing to disclose these commission arrangements prior to the ban. Most of these complaints have been rejected by firms, who believe they acted fairly and caused no financial loss.

Court of Appeal decision and Supreme Court review

The Court of Appeal ruled that, in three specific cases, it was unlawful for brokers to receive commission without giving the customer enough information and securing informed consent.

The final Supreme Court ruling is expected in July 2025, and the FCA will make its decision within six weeks of that judgment.

What the redress scheme could involve

If the legal thresholds are met, the FCA is likely to propose a formal redress scheme. Key considerations outlined include:

1. Opt-in vs opt-out structures

Opt-in

Consumers will need to notify their firm by a certain date if they want to be included in the scheme.

⚠️ This may be challenging, as some consumers might not recall which lender they dealt with.

Opt-out

Consumers would automatically be included unless they actively opt out.

✅ Easier for consumers and could reduce speculative claims.

💼 But potentially more costly and slower for firms, especially if customer contact details are out of date.

2. Standardised rules for redress

The FCA would define how firms must calculate redress. While some redress estimates have been based on Ombudsman decisions, the FCA may take a different approach based on:

• Legal rulings

• Evidence gathered during the review

• Its broader statutory objectives

3. Access without claims management companies (CMCs) or legal help

The FCA intends to design a process that is free, accessible, and easy to navigate, without the need for a claims management company (CMC) or solicitor.

'By signing up now with a CMC or law firm, [consumers] may end up paying for a service they do not need and having to pay up to 30% in fees.' FCA

4. Redress with market stability in mind

The FCA noted that an overly burdensome redress scheme could lead to firm exits or failures in the marketplace, harming industry competition and future consumer access to affordable finance. Any proposed scheme must strike a balance between consumer fairness and market sustainability.

Next steps and timeline

It won't be just those in the motor finance sector who will be affected by what happens next. Many other regulated firms within the finance sector and beyond will be watching closely to see how this plays out and the knock on effects.

• July 2025: Supreme Court judgment expected

• Within 6 weeks: FCA will confirm whether it proposes a redress scheme

• If confirmed: A formal consultation will follow, including draft rules and cost-benefit analysis

• Expected implementation: 2026 (subject to consultation feedback)

What this means for regulated firms

Firms involved in motor finance, including lenders, brokers, and intermediaries, should consider the following implications now.

1. Operational readiness

• Identify customers potentially affected by DCAs

• Review historical data quality and accessibility

• Prepare internal workflows for possible opt-in or opt-out schemes

2. Financial planning

• Model multiple redress cost scenarios

• Engage finance teams, auditors, and leadership on potential exposure

3. Governance and risks

• Ensure senior leadership visibility and board oversight

• Review past complaint handling and DISP compliance

• Prepare to respond quickly to the FCA consultation

4. Customer communication

• Train teams to handle queries accurately and neutrally

• Educate frontline teams on what the FCA update means and how to address potential queries

• Monitor for incoming complaints or third-party activity

The FCA has made clear that it wants to act quickly after the Supreme Court judgment. Firms that wait for a formal consultation before preparing may find themselves on the back foot.

Check out:

The 5 Cs of complaint handling. A practical framework for better outcomes