FCA: key considerations for a redress scheme

Key considerations in implementing a possible motor finance consumer redress scheme

We're setting out some of the things we need to consider if we were to introduce a redress scheme as part of our review into motor finance commission arrangements.

Our review

More than 2 million used and new vehicles are bought using motor finance each year. We want to make sure the motor finance market functions well, with effective competition, so consumers can get a fair deal.

Before January 2021, some motor finance lenders allowed brokers (usually car dealers) to adjust the interest rates on financing deals offered to customers. The higher the interest rate, the more commission the broker received. This was known as a discretionary commission arrangement (DCA), and we banned this practice in the motor finance market in 2021.

There have since been a high number of complaints from customers about firms failing to disclose details about commission arrangements before the ban. Firms were rejecting most of these complaints, because they believed they haven't acted unfairly and haven't caused customers to lose out.

In 2024, the Financial Ombudsman Service considered some complaints rejected by firms and found in favour of complainants in 2 key decisions involving DCAs [see the first decision and second decision]. We expected these decisions to trigger an increase in complaints.

In January 2024, we stepped in to investigate the use of DCAs in the motor finance market before they were banned in 2021.

When we announced our review, we extended the deadline for motor finance firms to provide a final response to relevant customer complaints. This was to prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while we assessed the issue.

Court of Appeal decision and Supreme Court appeal

The Court of Appeal decided it was unlawful in the circumstances of 3 cases for the car dealers to receive a commission (whether discretionary or a fixed percentage) from lenders providing motor finance without giving the customer sufficient information about the commission and getting their informed consent to the payment.

We've since expanded our review and extended the time firms have to respond to any relevant motor finance commission complaints to December 2025, following this decision by the Court of Appeal in October 2024. This includes where there was no discretionary commission agreement in place.

The Supreme Court heard an appeal in relation to the Court of Appeal decision in April 2025.  We made submissions to assist the Supreme Court. The Court has indicated that they aim to deliver their judgment in July 2025.

Potential consumer redress scheme

In March 2025, we said that if, following the outcome of the Supreme Court judgment, we conclude motor finance consumers have lost out, it's likely that we'll consult on an industry-wide consumer redress scheme.

Under a redress scheme, we would set rules for how firms assess claims and calculate redress, and we would put checks in place to ensure they are following the rules.

We would aim to make any scheme easy for consumers to understand and participate in, without needing to use a claims management company (CMC) or law firm.

Consumers should be aware that by signing up now with a CMC or law firm, they may end up paying for a service they do not need and having to pay up to 30% in fees out of any award they may receive.

There are legal tests that must be met to introduce any redress scheme. It must appear to us that there has been a widespread or regular failure to comply with requirements such that:

á    Consumers have suffered (or may suffer) loss or damage for which a court would grant a remedy or relief, and

á    We consider it desirable to establish a consumer redress scheme compared to other routes by which consumers could obtain redress.

Seeking views from stakeholders

We've been speaking with consumer groups, firms and industry trade bodies to get their views on important issues to consider if we do introduce a redress scheme.

If we do decide to propose a redress scheme, we'll publish a consultation setting out why we think it's the right thing to do and how it could work.

It's not possible to predict the outcome of the Supreme Court's judgment, but we're engaging with stakeholders now and providing this update because we want to be able to act as quickly as possible once the Supreme Court has made its judgment, so we can start to bring greater certainty for affected consumers, firms and investors. For example, given the pre-consultation engagement, we may decide to have a shorter than normal consultation window (for example, 6 weeks).

Principles of a redress scheme

In designing a redress scheme, we would be guided by principles, including:

1. Comprehensiveness - cover as wide a range of complaints as possible so consumers don't have to go elsewhere, like court.

2. Fairness - ensure the approaches to determining breaches and calculating redress are fair to consumers and firms.

3. Certainty - give consumers and firms finality.

4. Simplicity and cost-effectiveness - easy for consumers to participate in and the cost of delivering the scheme should be proportionate for firms.

5. Timeliness - resolve the majority of claims within a reasonable timeframe.

6. Transparency - consumers should receive clear explanations of decisions and data highlighting the progress of the scheme should be publicly available to provide confidence.

7. Market integrity - support the ongoing, long-term availability of high quality, competitively-priced motor finance.

There may be tensions between some of these principles, which will require us to consider how to strike the right balance. For example, if we seek to make a redress scheme comprehensive and ensure a wide range of affected consumers are included, it may mean consumers have to wait longer for redress because there are more claims to process.

Views from everyone who responds to the consultation will be vital in helping us get this balance right.

Scope of a redress scheme

The features we'd have to consider when designing a redress scheme.

Opt-in or opt-out

Under an opt-in redress scheme, customers would have to confirm to their firm by a certain date that they wish to be included.

An opt-in approach can be challenging. While we would seek to make it as easy for people as possible, some consumers may be unsure which firms they had agreements with.

Under an opt-out redress scheme, customers are automatically included unless they opt out.

An opt-out scheme is likely to be simpler for consumers and could reduce speculative claims. But for firms, it could be more expensive and take longer to implement, particularly if customers have changed address.

How firms should calculate redress

We've seen a range of redress rates suggested. This includes some highly speculative figures by some CMCs and law firms.

Some estimates have been calculated based on Financial Ombudsman decisions.  We may take a different approach to calculating redress in any intervention we make. We're required to take a broad view that takes into account all our statutory objectives. This will include considering all the evidence we've gathered and the Supreme Court judgment to determine whether and how far consumers may have lost out.

Any redress scheme must:

á    Be fair to consumers who've lost out.

á    Ensure the integrity of the motor finance market, so it works well for future consumers.

If many firms were to go out of business or withdraw from the market, this could reduce competition and could make it more expensive for consumers to borrow money to buy a car in the future. Where firms fail, customers may not get any redress, as motor finance isn't covered by the Financial Services Compensation Scheme.

Have your say

If you have feedback on the key principles we would use to design a redress scheme or aspects of its scope, please email motorfinance@fca.org.uk.

Next steps

We'll confirm within 6 weeks of the Supreme Court judgment whether we're proposing to introduce a redress scheme. If so, we'll also set out timings for when we would issue a consultation.

Our consultation would set out detailed proposals for how a redress scheme would work in practice alongside draft rules, including the proposed timings for when a redress scheme would be implemented. It would include a cost benefit analysis (CBA) scrutinised by our CBA Panel of external experts.

Following the consultation, we'd confirm whether we're going ahead with a redress scheme, and if so, what the final rules are. The final rules would set out when firms need to implement the scheme, which we would expect, subject to consultation, to be in 2026.

We will also keep under review the rules in our Handbook we have for motor finance firms and will announce soon after the judgment if we propose any changes.