FCA’s £8.2bn car finance scheme prompts industry caution

The Financial Conduct Authority (FCA) has unveiled plans for an industry-wide compensation scheme that could see up to 14 million UK motorists receive payouts averaging £700 each, following “widespread failures” by lenders and brokers to disclose car finance commissions.

The proposal, launched on Tuesday for consultation, follows the Supreme Court’s ruling on 1 August that found lenders had acted unlawfully in several test cases over undisclosed high commissions and exclusive agreements with dealers. The FCA estimates that total redress could reach £8.2 billion, rising to £11 billion when operational costs are included.

The scheme would cover car finance agreements signed between April 2007 and November 2024, and would provide what the regulator described as a “simpler, quicker and fairer” alternative to court action or individual complaints to the Financial Ombudsman Service.

Under the plans, lenders would automatically contact affected customers – with those who have already complained automatically included in the scheme unless they choose to opt out. This “opt-out” structure is intended to streamline the process and ensure faster resolution for existing complaints. Consumers would not need to use a lawyer or claims management company (CMC) to make a claim, the FCA stressed, a point it intends to reinforce through a national awareness campaign.

Legal clarity, operational complexity

While consumer advocates welcomed the FCA’s attempt to draw a line under years of uncertainty, legal and industry figures cautioned that the scheme’s complexity – set out across a 360-page consultation document – could create challenges for lenders and confusion for customers.

“There is simplicity on the FCA’s message of compensation being paid to consumers, but this is set against the context of a 360-page consultation which firms will have to grapple with and apply to their own business dating back over two decades.”

He warned that the regulator’s headline figure of £700 per agreement risked setting unrealistic expectations among borrowers:

“The suggestion of an average ‘payout’ of £700 sets an expectation that may not be realised for many customers. It may be that the experience of many customers will be quite different from this. This could have consequences further down the line where customers feel they have been unfairly treated, perhaps against false expectations set here and already promoted by CMCs.”

Gibbard described the proposed scope as “incredibly wide,” covering up to 14 million finance agreements, and said some of the eligibility criteria could lead to “unintended consequences” unless clarified during the consultation process.

“There is a difficult balance to satisfy the competing demands and expectations of all participants and stakeholders in the market,” he added. “For a consistent approach to redress, this will require compromise on all sides – this is clearly the path that the FCA are trying to follow in the consultation.”

‘Bookends and boundaries’ welcomed by lenders

“This brings some clarity to the proceedings, with the FCA providing bookends on the overall number of contracts in scope, the smaller number of customers who may be able to make a claim and also the quantum of the likely total compensation. This at least will be welcomed by lenders.”

He said the FCA’s “opt-out” structure for consumers who have already complained would streamline the process and “be seen as bad news by CMCs.”

“The FCA campaign against using CMCs is somewhat of a first as far as I can remember,” Betteley noted. “I can see a law firm taking an omnibus claim against CMCs who try to recover both cancellation fees and/or 30% of any compensation paid under the FCA-mandated opt-out scheme.”

Betteley also pointed out that leasing agreements are being treated differently from hire purchase (HP) and personal contract purchase (PCP) deals, with leasing complaints still facing a December 2025 deadline, while lenders have until July 2026 to resolve other cases.

“The devil will be in the detail once firms are able to digest the FCA’s 360-page consultation document,” he added.

Costs still too high

“We remain concerned that the costs are too high, but this is a 360-page document which will require much scrutiny over the coming weeks as we assess the best way to get redress to those consumers who lost out, while keeping the motor finance market stable and competitive.”

The FCA said its analysis showed the motor finance market remained “orderly and functioning,” but it acknowledged some non-prime lenders could be more exposed to the financial impact of redress.

‘Balanced but complex’

“The FCA’s publication of its proposed redress scheme sets out the scope and methodology for a scheme, and it is a balance between consumers and firms,” he said.

“The tests for determining if redress is due are simple and this approach makes the assessment of an Unfair Relationship easier for motor finance lenders to apply.”

Barnwell noted that the regulator’s three key tests — discretionary commission, high commission, or exclusive tie arrangements — would help standardise redress decisions. He also welcomed the FCA’s proposal for 1% simple interest on compensation as “a more pragmatic solution.”

“The FCA believes around 44% of consumers may be eligible for redress. Based on our analysis, we think this may give a range of redress payments in the region of £9 to £11 billion,” he added.

Industry reaction: cautious cooperation

Lenders are expected to cooperate with the FCA during the consultation period, with many assessing their potential exposure.

A spokesperson for CA Auto Finance said: “We are currently reviewing the announcement by the FCA of a proposed industry-wide compensation scheme for UK motor finance customers. Like many lenders, we are assessing the implications of this for our business and our customers and will work closely with the FCA and industry bodies throughout the consultation process.”

In a statement, Ayvens said it had taken note of the FCA’s consultation announcement and that its existing financial provisions were adequate to cover its potential UK exposure.

“Ayvens has taken note of the FCA consultation announcement dated 7 October 2025 relating to UK Motor Finance Commissions and its proposed redress scheme,” the company said. “Ayvens’ preliminary analysis of this proposed redress scheme is that the provision recorded in its 2024 financial statements (as disclosed in Ayvens’ Universal Registration Document for 2024) for the potential liabilities relating to the UK motor finance commissions exposure remains sufficient.

“Ayvens will continue to assess the developments and implications of this consultation and to review its estimate as appropriate.”

Next steps

The FCA’s consultation on the motor finance redress scheme will run until 18 November 2025, with final rules expected early next year.

If approved, compensation payments could begin later in 2026, marking one of the largest consumer redress exercises in UK financial history.