The FCA has today published the motor finance redress scheme set to compensate customers who were treated unfairly between 2007 and 2024.
Read the full Redress Scheme Here
The FCA’s motor finance redress scheme is a major step forward for consumers who were treated unfairly when taking out car finance between 2007 and 2024. In clear terms, the regulator has accepted many lenders and brokers failed to properly disclose commission and other commercial arrangements which could affect the price of finance. As a result, millions of customers may now be entitled to compensation, and firms will be required to review agreements and pay redress where unfairness is found.
The scheme is split into two parts.
- Scheme 1: agreements from 6 April 2007 to 31 March 2014
- Scheme 2: agreements from 1 April 2014 to 1 November 2024
Scheme 1 covers agreements entered into between 6 April 2007 and 31 March 2014. Scheme 2 covers agreements entered into between 1 April 2014 and 1 November 2024. The FCA says this two-scheme structure should help avoid delay, especially if the earlier period becomes subject to legal challenge. The regulator estimates around 12.1 million agreements could fall within scope, with around £7.5 billion expected to be paid in compensation.
In practice, lenders must review whether an agreement falls within the relevant dates and involved commission. They must then consider whether the case involved a discretionary commission arrangement, a high commission arrangement, or a tied relationship between broker and lender. Some claims will fall outside the scheme, including matters already decided by a court or the Financial Ombudsman, cases where redress has already been accepted, certain limitation exclusions, and high-value loans.
The process is expected to work as follows:
- the lender checks if the agreement is eligible
- the lender decides whether unfairness is present
- if compensation may be due, the consumer is notified
- the consumer can accept the outcome or challenge it
- payment should follow within one month of acceptance
Consumers who have already complained should be reviewed first. Those who have not yet complained may still be contacted by lenders if compensation appears due. Importantly, anyone who is not contacted still has the right to bring a complaint by 31 August 2027.
For claimant law firms, the scheme creates a significant opportunity to help consumers secure proper compensation and challenge weak lender decisions. Although the process is designed to be free for the public to use, many consumers will still want expert advice on eligibility, valuation, exclusions, limitation issues, and whether a lender has applied the rules properly. There will also remain a clear role for lawyers where claims are rejected, undervalued, or involve issues outside the scheme.
There are also a strong valuations. The FCA estimates average compensation at about £829 per agreement, though actual awards will vary depending on the facts. Some consumers may recover less, while others in more serious cases may receive far more, especially where the case is close to the Johnson type of unfairness, involving very high commission and hidden lender-broker arrangements. For claimant firms, this gives an early benchmark when assessing case value, while also leaving room to scrutinise whether a lender’s calculation fully reflects the consumer’s loss.
One notable point is that lenders do not need to contact every customer. If no complaint has been made, the lender only needs to reach out where it considers compensation may be due. On paper, this reduces cost and administrative burden. In practice, it creates obvious scope for abuse. In these instances, consumers may never know they had a viable claim unless they take advice and submit a complaint themselves. For that reason, claimant firms are likely to play a vital role in making sure consumers are not missed by an overly restrictive internal review.
For lenders, this is a heavy compliance exercise. For consumers, it is a long-awaited route to redress. For claimant firms, it is a substantial consumer claims landscape where careful case review, valuation advice, and challenge work will remain essential.
Read the full Redress Scheme Here
Author: TOF
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