FCA Consultation Paper on Motor Finance Redress Published

• The United Kingdom Financial Conduct Authority (FCA) has published Consultation Paper 25/27 (the CP) proposing a redress scheme for motor finance misselling claims. This CP follows on from substantial investigative work done by the FCA into the motor finance sector, as well as the Johnson case decided by the Supreme Court of the United Kingdom (UKSC) on 1 August 2025, discussed in our earlier alert here.
• Importantly, the CP sets out (i) what types of agreements could be covered, (ii) who could take part in the redress scheme (with some claimants automatically opted in, others who may opt in and some who would not be eligible), and (iii) the manner in which the quantum of redress would be calculated.
• Whilst the proposed redress scheme aims to be expansive, covering a wide range of claims and claimants, it is not unlimited – in particular, the FCA only expects 44% of agreements within the relevant 2007-2021 timeframe to be eligible at all, and the regulator also notes that some people may be better off pursuing claims in Court.
• The regulator has also amended the amount it believes each claimant might expect to recover per agreement from “less than £950” when it first put out a statement in August 2025, down to on average £700 per agreement.
• The FCA has been keen to say that it has tried to design a scheme for which consumers will not need to use a claims management company or a law firm. However, there are a number of matters raised in the consultation which suggest a significant role for claims management remains.
• The CP is open to comment on its main provisions until 18 November 2025,¹ with the FCA expecting to make final rules in early 2026, with the aim that consumers might start to receive compensation later in 2026.

Background Summary^2 3

Motor finance agreements are often arranged on (or rather near) a motor dealership forecourt. To facilitate the sale of a vehicle, the motor dealer acts as a broker for a consumer to finance that vehicle, with the ultimate financing arrangement being entered into between the consumer and a lender.

Originally, claims were brought on behalf of consumers who had entered into such agreements where the broker was acting under a “Discretionary Commission Arrangement” (DCA) , where the broker’s compensation would be higher if the financing agreement the consumer entered into had a higher interest rate. This practice was common until it was prohibited by the FCA in January 2021.

These claims were brought through the courts as well as through complaints to the Financial Ombudsman Service (FOS). In January 2024, in two test cases challenging DCAs, the FOS awarded each claimant money awards. In those cases, the FOS awarded the claimants the difference between the amount of interest they had paid under the agreements, and the lowest interest rate which could have been offered.

Separately, proceeding through the courts, other claims were being brought under the Consumer Credit Act 1974 (CCA), seeking a finding that the relationship between the lender and the consumer was “unfair” within the meaning of section 140A CCA⁴ on account of the dealer’s (inadequately disclosed) financial interests in the transaction. Importantly, this included not just DCA transactions, but many other transactions where the dealer had a financial interest. In October 2024 the Court of Appeal gave a very expansive judgment which would have meant that very many financing agreements (both DCA and non-DCA) would be “unfair” under the CCA and so would attract compensation. In August 2025, however, the Supreme Court in Johnson v. FirstRand Bank Limited [2025] UKSC 33 and two associated cases narrowed this judgment significantly.⁵ The Supreme Court’s judgment did not give a clear explanation of all the cases which would be “unfair”, but found that there was in a case where:

• The consumer was “commercially unsophisticated”.
• The size of the commission paid to the broker was substantial, noting that it constituted (i) 26% of the total advance of credit, and (ii) 55% of the total charge for credit (comprising interest and fees). The Court found that this commission was insufficiently disclosed, particularly in light of its size.
• Whilst the documentation said that the broker had a “panel” of lenders, there was an undisclosed commercial tie between the broker and the lender, such that the broker had to introduce customers to one lender first. This arrangement was not disclosed in the documentation.

As such, in this case the Supreme Court awarded that claimant the value of the commission plus interest in recompense, being £1,650.95 plus interest. It is important to note that under s.140A and s.140B CCA, Courts have very wide discretion to set the remedy to be given if a finding of “unfairness” is made.

FCA Redress Scheme – Legislative Scheme, Findings and King’s Counsel Opinion

Under s.404 of the Financial Services and Markets Act 2000 (FSMA),⁶ the FCA has the power to make rules requiring firms to engage in a redress programme if (i) it appears that there may have been a widespread or regular failure by relevant firms to comply with requirements applicable to the carrying on by them of any activity, (ii) it appears that as a result consumers have suffered, or may suffer, loss or damage in respect of which a remedy or relief would be available if they brought legal proceedings, and (iii) the FCA thinks it desirable to make a redress scheme as a result.

The FCA has not used the s.404 FSMA power frequently, and given the high-profile nature of this action, the amount of money at stake and the multiple competing interests, the FCA has taken care in the CP to justify the steps being proposed. In particular, in Chapter 7 of the CP, the FCA sets out the three points which must be determined in order to assess whether the lender has liability, namely:

• If any relevant arrangement was present, that is, if one of the types of potential unfairness covered by the scheme was present.
• Whether that potential type of unfairness was adequately disclosed or if there was inadequate disclosure, leading to an unfair relationship.
• If there was an unfair relationship, whether that caused loss or damage to the consumer.

In this case, the FCA has found that these requirements are met, including following a review by a skilled person of motor finance case files, as well as the FCA’s own review of lenders’ files. The FCA reports that as part of its review, it has the benefit of analysis in respect of 31.86 million agreements.⁷

Because of its view that there was “widespread or regular failures”, the FCA has proposed that there should be two rebuttable presumptions (discussed further below), namely that (i) an unfair relationship arose from inadequate disclosure of the relevant arrangement, and (ii) that such an unfair relationship caused loss or damage to the consumer.

In addition, the FCA has also sought the opinion of Ms. Jemima Stratford KC⁸  on the lawfulness of the scheme as proposed, which is appended to the CP, particularly in relation to whether or not the failures identified would constitute the “failure to comply with a requirement”. Ms. Stratford KC concludes that they would, and that the “approach taken is appropriate and lawful” in relation to the matters she considered.⁹

Scope: Timeframe and Opt In/Out Issues

Timeframe

Section 140A CCA came into effect on 6 April 2007, and DCAs were prohibited on 28 January 2021. In order not to artificially exclude any such agreements, the FCA has decided to permit any people who entered into agreements in this period to take part in the redress scheme.¹⁰

Who: the Opt-Ins and the Opt-Outs

In previous publications, the FCA did not give a clear indication of whether it would propose an “opt-in” or an “opt-out” scheme. In the end, it has done neither: some people will be automatically ‘in’ the scheme; others will have to consent to be added to the scheme if they so wish.

• Consumers who have already complained about an issue covered by the scheme at the time the scheme comes into force, but who have not referred that complaint to the FOS, will be “opted in” to the scheme, with the choice to opt out.¹¹
• Consumers who have not complained will be contacted by the lender and invited to opt in (which they would have to do within 6 months of receiving the letter). Anyone who makes a complaint within the first year of the scheme will be assumed to be opted in.
• After the ‘opt in’ period has ended, consumers will not be able to complain to the firm or the FOS about a matter which would have fallen within the scope of the scheme, unless there are “exceptional circumstances”.

Under these proposals, there is a significant burden placed on lenders to identify consumers (including through credit report searches), and identifying which cases could be “scheme cases”, and then informing the relevant consumers if their case is a “scheme case” (discussed in section ‎4 below). If lenders do not comply with the scheme, they could be liable to the FCA for failing to comply with rules, and/or consumers could raise complaints with the FOS.

The FCA notes that lenders “may struggle to contact all consumers”, so consumers need to be ready to contact their lender within 1 year of the start of the scheme in order to participate. Despite the repeated statements of the FCA and the Solicitors Regulatory Authority (SRA) discouraging the use of claims management firms by consumers, the FCA appears to recognise the importance of such firms in this system or at least allows for their role.

“Scheme Cases”

The FCA is proposing to have the redress scheme cover claims in relation to agreements which have one or more of the following three “unfair arrangements” which was not adequately disclosed: a DCA case, a High Commission case (as defined below) or a Tied Arrangement Case.

Adequate Disclosure

In each case, these will only be unfair if they were not “adequately disclosed”, which the FCA understands to mean that “clear and prominent information about any relevant arrangement was provided to consumers before they agreed to the loan”. In particular, the FCA makes clear that “simply disclosing a bare fact, or possibility, of a commission” is not sufficient, such that saying that a commission “would”, “may” or is “typically” payable, would be found inadequate on its own.

The FCA says that the information “should have been provided in a way that the attention of the ‘average consumer’ would be drawn to them, for example not hidden in small print or lengthy terms and conditions, or otherwise obscured”, whilst also noting that particular characteristics of a consumer – e.g. a disability – may mean that something which could have been adequately disclosed for some people, might not be for everyone.

Where evidence is missing, the FCA has proposed a presumption that there was inadequate disclosure, unless the lender can provide evidence to the contrary.

Unfair Arrangements

• DCA cases will be presumed unfair unless adequately disclosed or the presumption is rebutted.
  • Adequate Disclosure: In relation to DCAs, the FCA has said that, in its view, adequate disclosure required explaining not just that commission was paid, but also the nature of the arrangement. The FCA reports that of the 3,333 DCA case files which were reviewed, not one disclosed that a commission would be paid, giving details about the commission arrangement. As such, they expect all DCAs to be eligible, unless there are very unusual circumstances.
  • Rebuttable Presumptions: The FCA proposes two other ways in which unfairness could be rebutted, namely: (i) if in a particular case the broker chose the lowest interest rate at which they would not have made any additional commission under the DCA, or (ii) if there was inadequate disclosure, but the consumer was “sufficiently sophisticated” to understand the arrangement anyway. The FCA expects the “sufficiently sophisticated” limb to be a narrow class of people, such as those who worked in a relevant role in the motor finance industry.
• High Commissions will be presumed unfair if the commission was 35% of the cost of credit and 10% of the amount financed, where both limbs would need to be met.
  • Adequate Disclosure: disclosure required lenders to disclose “both the fact and the amount of the commission”, or “information that enabled the consumer to easily work out the amount”. Regarding the cases proceeding on the basis of a high level of commission, the FCA has noted that commission was disclosed in only 4% of the case files reviewed, not disclosed in 79% and there was inadequate evidence of disclosure in the remaining 17%.
• Tied Arrangements will be presumed unfair where a broker was obliged to introduce customers exclusively to one lender or were required to give a lender the first opportunity (a ‘right of first refusal’).
  • Adequate Disclosure: The FCA says that this required lenders to tell the consumer about the arrangement and give them sufficient information to understand whether the broker was required to introduce exclusively to one lender or give that lender the right of first refusal.
  • In DCA cases where there was an undisclosed “right of first refusal” to one lender, the FCA identified this in 29% of cases, with 21% of cases being unclear on the point. In the cases where a right of first refusal was present, the FCA only found that this was disclosed in 10% of cases. In non-DCA cases, 9.5% of the cases where the FCA asked about the “right of first refusal”, had such a right that was not disclosed.

Presumption of Loss and Damage

The FCA proposes that in every case where the presumption of unfairness in relation to a DCA is not displaced, there will be a presumption that there has been loss and damage to the consumer.

There will also be a presumption of loss and damage in High Commission and Tied Arrangement cases, but the FCA proposes that this will be rebuttable if the lender can provide “clear, contemporaneous and customer-specific evidence that the consumer would not have secured a lower APR from any other lender the broker had arrangements with at the time of the transaction”. This could include taking into account, for example, that the borrower was high-risk, or the lending required additional work.

Documentary/Evidence Problems

The FCA notes that people who entered into agreements over 18 years ago could be part of the redress scheme. Given this, in particular, there has been significant concern that it will be difficult for lenders/brokers to evidence whether a particular agreement should be found to be “unfair”. The FCA has said that, from its review, “most firms should be able to identify relatively easily from their records the amount of commission paid and whether the agreement involved a DCA”.

The FCA admits, however, that firms are likely to face particular challenges about tied arrangements. As a result, the FCA is proposing to require lenders to conduct a suitable search for the records, request documentation from the relevant broker (who would also be required to conduct a suitable search) and if there is still inadequate documentation, request information of the consumer. A senior manager at the lender will be required to attest to this process. If at the end there is still no evidence that a tied arrangement was involved, the lender may assume that no such arrangement existed.

Quantum

The FCA rightly notes that s.140A CCA gives courts “very wide remedial powers” which are intended to “restore fairness”.

Bound, to some degree, by the Supreme Court’s decision in Johnson, the FCA is proposing that cases whose facts “align closely” with that case should get the “Commission Payment Remedy” (being the commission plus interest) which the Court granted Mr. Johnson. For all other cases, the FCA proposes that there should be a “Hybrid Remedy”, which would be the mean of:

• The APR Adjustment Remedy, under which the lender would need to work out the difference between the amount which was paid by the consumer, and the amount which would have been paid with a 17% reduction in the APR, plus compensatory interest. This figure has been chosen because the FCA has found that borrowing costs on loans with a flat fee commission structure were, on average, 17% lower than comparable DCA loans.
• The Commission Repayment Remedy, being the redress which would apply in Johnson cases.

The FCA proposes that compensatory interest should be simple interest at the annual average of the annual daily Bank of England base rate for that year, plus 1ppt, rounded up to the nearest quarter percentage point. The FCA proposes to make this rate rebuttable upon provision of supporting evidence by the consumer.

The FCA proposes to use the Hybrid Remedy in recognition of the fact that courts have a broad discretion in CCA cases, and choosing one method on its own would not capture the choices that the courts would have had. As such, whilst the APR Adjustment Remedy on its own would reflect the FCA’s assessment of consumers’ financial loss, the FCA wanted to ensure that a broader scope of remedies (such as the repayment of commission) was taken into account as well.

Based on this scheme, the FCA expects eligible consumers to receive an average of around £700 per agreement.

What Next for Claims Management Firms?

Cases which are already being managed by a claims management firm or a law firm will continue to be managed by them. These firms need to continue to keep up with the fairly frequent press releases and update statements from the regulators, particularly on how they are advertising to consumers.

As noted above, the FCA has been keen to reiterate that consumers will not need to use claims management firms or law firms to make claims and again directs the market to a joint statement it has made with various regulators, including the SRA, on the joint actions to “tackle poor claims management practices”. At the same time, the CP itself raises certain points where there are potentially important roles for claims management firms. For example:

• The FCA notes that lenders “may struggle to contact all consumers”. Whilst lenders will be under an obligation to make attempts to contact customers, they may not find this possible. Consumers may also be concerned that the lenders’ attempts will be insufficient. There are exactly the sorts of issues where a claims management firm or a law firm with appropriate advertising may be able to assist consumers who are not contacted promptly, and those firms may perform an important service in (e.g.) running credit checks or having a set of information about the general practice of lenders and brokers throughout the period.
• The FCA recognises that some cases may be better litigated, as they may achieve better outcomes for consumers than the broad-brush consumer redress scheme approach can afford them. Claims management companies and law firms will want to consider this carefully, in particular their obligations to ensure the best interests of their clients, and to opt them out (or advise them not to opt in) if appropriate.
• Given the complexities of working out whether a case will be covered by the scheme or not – particularly around disclosure – claims management companies and law firms may have an important role to play in helping their clients advocate their positions against the lenders. This will be particularly important in relation to disclosure, especially where the client has vulnerabilities which need to be taken into account when assessing adequacy. Similarly, identifying when a case might be aligned with the facts in Johnson may be a matter on which claims management companies and law firms are well-placed to assist.
• Finally, the FCA devotes a section of the CP to the ability of lenders to settle with consumers without going through the whole process of contacting, determining and then paying. In these cases, the settlement needs to be at least as much as the consumers would have obtained through the scheme. It is possible that it could be attractive to lenders to settle for a little more than they would have paid under the scheme if they can do so quickly and for a large number of claims, such as might be possible if a claims management company or a law firm has already amassed the information in an appropriate format.

All parties should be mindful that it is possible that one or more persons might attempt to judicially review and challenge the lawfulness of the scheme.

The CP will be open for comment on its main provisions until 18 November 2025. Thereafter, assuming no judicial challenge, we expect the FCA to put out a Position Statement with final rules in early 2026, with redress to start to be paid during 2026.

^{1 There is an earlier deadline on the consultation to extend the moratorium on claims processing.}

^{2 The CP is over 350 pages long. Our note explains the most significant points, but necessarily leaves out matters of nuance and complexity in places. Please contact us for further information.}

^{3 Greater detail about the background to motor finance misselling claims can be found in our earlier alert here.}

^{4 https://www.legislation.gov.uk/ukpga/1974/39/part/IX/crossheading/unfair-relationships.}

^{5 https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_updated_3rd_Sept_4a120f2cfa.pdf.}

^{6 https://www.legislation.gov.uk/ukpga/2000/8/section/404.}

^{7 CP, para 3.5.}

^{8 KC, King’s Counsel, a senior barrister.}

^{9 CP, pages 259-267.}

^{10 For non-DCA cases with relevant unfair characteristics (High Commission/Tied Arrangements, as discussed in section 4), the FCA is proposing to permit finance agreements entered into up to 1 November 2024 to be included in the scheme.}

^{11 Someone who opts out of the scheme will not be able to opt back in.}