FCA launches motor finance consumer redress scheme consultation in UK

The Financial Conduct Authority (FCA) has launched its consultation for a motor finance consumer redress scheme for customers in the wake of the Supreme Court's decision in Johnson v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance (2025) and the High Court's decision in R (Clydesdale Financial Services Ltd) v Financial Ombudsman Service Ltd (2024).

The FCA had announced that it would consult on a potential redress scheme almost immediately after the Johnson judgment was handed down. 

Key features of scheme

The scheme will cover regulated motor finance (including hire-purchase, but not leasing) agreements taken out by consumers (including sole traders and small partnerships) between 6 April 2007 (when section 140A of the Consumer Credit Act 1974 came into effect) and 1 November 2024 (after the Court of Appeal judgment in Johnson).

It will be delivered by lenders rather than by brokers, however, brokers must cooperate with implementing the scheme and may face contribution claims from lenders. Cooperation would include brokers remitting customer complaints (assuming they fall within the scheme) to lenders for determination, to try to ensure consistency.

Compensation will be awarded to consumers based on the factual circumstances of their cases as follows:

• For cases that are similar to the Johnson fact pattern (defined by the FCA as involving both a contractual tie and commission equal to, or greater than, 50% of the total cost of credit and 22.5% of the loan amount), repayment of the total commission, plus interest. The FCA anticipates that these claims will be rare.
• For other cases, compensation would be an average of an estimation of loss calculated by reference to an FCA formula reducing the interest rate charged on the loan by 17% and the total commission paid. The FCA notes that a calculation of loss based on its formula is typically lower than both the total commission paid and the amount awarded in Clydesdale, which was based on the difference between the commission payable to the broker (based on the loan actually taken out by the customer) and the zero commission that would have been paid to the broker if the customer's loan had been at the minimum interest rate available. 

Simple interest will be paid on all compensation based on the annual average Bank of England base rate per year plus 1% from the date of overpayment to the date compensation is paid, provided that compensation is paid within the time period imposed by the FCA.

Inadequate disclosure

Generally, liability for compensation will involve a broker having engaged in inadequately disclosed:

• discretionary commission arrangements (DCAs);
• high commission arrangements (which the FCA considers means at or above 35% of the total cost of credit and 10% of the loan amount); and/or
• exclusivity or right of first refusal contractual ties between lender and broker. 

The FCA makes clear its view on what is required for "adequate disclosure" ("may be paid" not being sufficient, nor a disclosure hidden in the small print or buried in lengthy terms and conditions), absent which there will be a presumption that an unfair relationship equivalent to section 140A exists and loss or damage because of that unfair relationship.

It does, however, set out a limited number of bases on which that presumption can be rebutted, for example, if an inadequately disclosed DCA exists, but the facts show that the broker nonetheless selected the lowest interest rate, meaning it was not making any of the available discretionary commission.

Compensation amounts

On average, the FCA expects eligible consumers to receive approximately £700 per agreement. However, it notes that there is likely to be a wide range of payment figures, with "many consumers receiving more and a large number receiving less."

In total, based on an estimate of 85% of eligible consumers taking part (those who have a pending complaint when the scheme starts being in the scheme unless they opt out and those who opt in within one year of the scheme starting), the FCA expects the total cost of the scheme for industry to be approximately £11 billion. This consists of £8.2 billion in compensation payouts and £2.8 billion in implementation costs. The FCA is confident in the state of the market overall, if the proposed scheme goes ahead. It estimates that a scenario in which no redress scheme was implemented (and complaints were dealt with individually) would cost the industry approximately £6.6 billion more and create sustained uncertainty.

Four-stage process

Once the final rules for the scheme are published, the FCA envisages a four-stage process:

Stage 1: Pre-scheme checks (within three-six months of scheme starting)
Firms will contact their customers to explain whether their case falls within the scheme and what actions they should take. This must be completed within three months for consumers who have already complained (who will be automatically included in the scheme unless they have already had their complaint upheld, have a pending complaint before the Financial Ombudsman Service or opt out) and six months for those who have not (who will need to opt in, in order for be included in the scheme).

Stage 2: Liability assessment (three months)
Firms will assess whether they are liable to pay redress.

Stage 3: Redress calculation (same three months as liability assessment)
Firms will calculate the appropriate redress amount using the FCA's formula.

Stage 4: Payment (within one month)
Firms will send their redress determination to consumers and pay compensation where necessary, within one month of the final determination.
 
Overall, the FCA recognises that there are likely to be a wide range of views on the scheme, its scope, timeframe and how compensation is calculated. While it notes that the proposed scheme is a compromise that will not give every party everything that they would like, it hopes that it will resolve the matter quickly and strike a balance between the interests of consumers, brokers, lenders, investors and the long-term health of the market. 

In this spirit, the consultation is only running for an abridged period of six weeks, to 18 November 2025, with the deadline to comment on FCA proposals to further extend how long firms have to provide a final response being 4 November 2025. The FCA plans to publish its policy statement and final rules by early 2026 (dependent on the feedback the consultation receives).

Responses to the consultation can be provided via the FCA website or by emailing cp25-27@fca.org.uk. But the FCA has made clear, by sending a Dear CEO letter to all firms engaged in motor finance lending and broking from 2007, that its expectations are that firms should start their preparations for the redress scheme in the interim, failing which the FCA will intervene using its supervisory and/or enforcement powers.

Osborne Clarke comment

Although the consultation has only just been released, there have already been some strong objections to the scheme. Foremost among the concerns expressed are:

• Quantum and calculation method: The level of quantum to be awarded and its method of calculation – under section 140A the court has complete discretion as to remedy whereas under a section 404 of the Financial Services and Markets Act 2000 redress scheme (which this will be) the remedy must be based on customers' actual losses – in particular, compensation based on a 17% reduction in the interest rate applied to the loan does not necessarily reflect the imbalance between the parties caused by the unfair relationship. Nor does it necessarily follow that the payment of commission to the broker resulted in an increased interest rate for the customer.  
• Time periods: The cohort of motor finance customers falling within the scheme, particularly the need to go back to 2007, given applicable limitation periods and the issues this will raise in terms of data and document retention.  
• Implementation timeframes: Whether there is sufficient time for the scheme to be implemented by affected parties – particularly the three months to contact customers who have already complained.
• Definition of "high commission": That the FCA has significantly lowered the bar on what amounts to "high commission" (which it says is above 35% of the total cost of credit and 10% of the loan amount) from the Johnson case (where the commission was 55% of the total cost of credit and 26% of the loan). The FCA has also lowered the test for there to be an unfair relationship from that in Johnson, where the fact that the dealer had actually misrepresented the status (tied) of its arrangement with the lender proved persuasive to the court.
• Scope of tie arrangements: That including any circumstances where there was a tie/right of first refusal arrangement is overly inclusive. Some of these arrangements may actually have resulted in reasonable or low annual percentage rates and the Supreme Court made clear that DCAs are not necessarily unfair without considering all of the facts, yet the consultation suggests they are all unlawful.
• Ongoing complaints: The fact that live complaints will continue to be resolved by the Financial Ombudsman Service and scheme customers will have the ability to appeal the application of the scheme to it.
• Presumption of non-disclosure: That non-disclosure is presumed if there is no evidence that disclosure was adequate and, particularly, the requirement that both the fact and nature of the DCA were not disclosed.
• Wider implications: The potential read-across, particularly in the context of unfair relationship claims under section 140A, to other lenders.  

This Insight was written with the assistance of Ben Hills, senior paralegal at Osborne Clarke