FCA unveils £8.2bn compensation scheme for 14m unfair motor loans

Millions of UK drivers could receive payouts next year under a major compensation scheme proposed by the Financial Conduct Authority (FCA) following a landmark Supreme Court ruling on hidden car finance commissions.

The regulator said around 14 million motor finance agreements signed between April 2007 and November 2024 may have been unfair due to lenders’ failure to disclose key commission arrangements with car dealers and brokers.

Under the proposed redress scheme, affected borrowers would receive an average of £700 each, with total compensation estimated at £8.2 billion. Including operational costs, the FCA projects the total bill for lenders could reach £11 billion.

“Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.”

“On such a complex issue, not everyone will get everything they would like. But we want to work together on the best possible scheme and draw a line under this issue quickly.”

‘Widespread failures’

The FCA’s review, covering 32 million finance agreements, found “widespread failures” by lenders and brokers to disclose commissions or exclusive deals that influenced loan costs.

In many cases, dealers were able to raise customers’ interest rates in exchange for higher commissions – so-called “discretionary commission arrangements” (DCAs) – which the regulator and courts have ruled created “unfair relationships” with borrowers.

The Supreme Court’s ruling on 1 August 2025 in the Johnson case confirmed that lenders had acted unlawfully by failing to disclose large commissions and contractual ties with brokers.

That judgment cleared the way for the FCA to press ahead with an industry-wide solution, following months of uncertainty and tens of thousands of frozen complaints.

How the scheme would work

The proposed compensation scheme would automatically cover loans taken out between 6 April 2007 and 1 November 2024, where the lender paid commission to a broker.

Consumers who have already complained will be prioritised, with their cases reviewed within three months of the scheme starting. Others will be contacted by lenders within six months and asked to opt in. Those not contacted will have up to a year to make a claim.

People will not need to use lawyers or claims management firms; the FCA warned that doing so could reduce the compensation individuals receive.

What counts as unfair

Borrowers would be eligible for compensation if they were not told about at least one of three types of arrangements:

1. A discretionary commission that allowed brokers to adjust interest rates for a higher commission.
2. A high commission (equal to or above 35% of the total cost of credit and 10% of the loan).
3. A contractual tie between the lender and broker that gave a lender exclusive or preferential rights to provide finance.

The FCA proposes allowing lenders to rebut the presumption of unfairness only in limited cases, for instance, where they can prove a customer was fully informed or would not have obtained a better deal elsewhere.

Next steps

The FCA’s consultation on the proposed scheme runs until 18 November 2025, with final rules expected in early 2026. Payouts could begin later in the year.

The regulator is also consulting on extending the deadline for firms to respond to existing complaints until 31 July 2026, to ensure consistency and orderly redress.

Without a scheme, the FCA warned that millions of complaints could otherwise head to the courts or the Financial Ombudsman Service, creating years of delays and “significantly higher costs” for all involved.

Industry and market impact

While lenders are braced for billions in costs, the FCA said it expects the motor finance market to remain stable. It acknowledged that non-prime and smaller lenders could face greater strain but said many such firms did not engage in the unlawful commission practices and would therefore be less exposed.

The regulator also plans an advertising campaign to raise awareness and ensure consumers know they can claim directly, free of charge.

This is a developing story. Updates will follow.