Preparing the motor finance industry for the surge in complaints

What happened?

On Sunday 3 August 2025, the FCA confirmed it would consult on a compensation scheme intended to provide redress to consumers who were treated unfairly when taking out motor finance. This followed the Supreme Court’s ruling on three cases in which the Court of Appeal had previously found that commission payments to car dealers were unlawful.

The Supreme Court overturned two of the three cases, but in the third, it ruled that the commission arrangements had resulted in an unfair relationship between the consumer and the lender under section 140A of the Consumer Credit Act, making the commission unlawful.

The FCA has committed to publishing a consultation paper by early October 2025 setting out its proposals, and anticipates the scheme being finalised in time for complainants to start receiving compensation the following year.

Why does it matter?

The FCA has stated that the scheme should cover discretionary commission arrangements (DCAs), where a broker could adjust the interest rate offered to a customer. Following the Supreme Court’s ruling, it is also considering whether some non-discretionary commission arrangements should be included, on the basis that they may have been unfair under the Consumer Credit Act.

The regulator has proposed that the scheme cover motor finance agreements dating back to 2007, to remain consistent with the period the Financial Ombudsman Service can consider. This scope, together with the criteria for unfairness, is likely to be challenged by the industry during the consultation process.

Who is affected?

Motor finance lenders and the dealers and brokers that arranged agreements with discretionary commission, particularly those with agreements dating back to 2007. Consumers who took out motor finance with a DCA, and potentially those with certain non-discretionary arrangements, may be eligible for redress.

Key risks

• Firms may not hold complete records for older agreements, particularly those dating back to 2007.
• A rise in affordability complaints and data subject access requests is already apparent across the sector.
• Uncertainty remains over whether the scheme will operate on an opt-in or opt-out basis.
• The FCA’s proposed criteria for unfairness may be challenged by the industry as too broad.

Actions to take

1. Define the affected customer base: identify which customers held discretionary commission agreements and assess the quality and completeness of the underlying data.
2. Review policies and procedures to confirm they are designed, compliant and suitable for handling a redress scheme at scale, including dealer disclosure practices and distribution arrangements.
3. Plan operational resource, including experienced and qualified staff, to manage an expected rise in complaint and DSAR volumes without disrupting business-as-usual service levels.
4. Consider automation and workflow tools that can support accurate, auditable remediation of large customer populations.

Wider implications

The FCA may not expect redress payments before the end of the year, but boards need to understand their exposure and begin preparation immediately. Firms that plan in a structured way, with clear data governance, are better placed to manage redress at scale than those that wait for the final scheme details.

Recommendations

Early preparation, particularly around data integrity, governance and complaint handling, is the key differentiator between a reactive and a proactive response to a redress scheme of this size.