FCA Car Finance Redress Scheme Explained

The Financial Conduct Authority (FCA) is developing plans for a large-scale car finance redress scheme, designed to address historic concerns around how some Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements were sold. This follows an in-depth review into historic discretionary commission arrangements (DCAs) a practice the FCA believes may have created unfair outcomes for consumers. You can read the FCA’s latest update on this work here.

DCAs were banned in January 2021, but with millions of agreements written before then, the redress scheme could become one of the most significant consumer exercises in the motor finance sector. The FCA has set out its approach to this review in its statement on key considerations for implementing a possible redress scheme.

Why the FCA Is Introducing a Redress Scheme

Before 2021, some dealers and brokers were able to adjust the interest rate offered to customers. The higher the interest rate, the higher the commission the intermediary could receive. This created a potential conflict of interest, and many customers may not have been aware this mechanism existed.

The FCA highlights these concerns in its statement outlining its ongoing work in the motor finance market, which you can view.

Although the FCA removed DCAs through its policy statement PS20/8, questions remained over whether earlier finance agreements were sold in a way that meets today’s regulatory expectations.

The Financial Ombudsman Service (FOS) has also been receiving complaints about car finance mis-selling, and you can view its guidance here.

What the Redress Scheme May Cover

While the FCA has not yet published final rules, it has outlined areas that may fall within the scheme, including whether:

1. Interest Rates Were Inflated Due to Commission

Customers may have paid more interest because the broker had discretion to increase the rate. The FCA explains this issue in more detail in its update.

2. Commission Structures Influenced Outcomes

The FCA is assessing whether customers were treated fairly when interest rates were set by intermediaries. More details are provided in the FCA’s statement.

3. Important Information Was Properly Disclosed

Whether customers were given clear, fair and non-misleading explanations about commission arrangements. The FCA clarifies its expectations for disclosure in PS20/8.

4. Customers Were Treated Fairly

Firms must follow the FCA’s core principles, including Principle 6 , “a firm must pay due regard to the interests of its customers and treat them fairly”. This is set out here.

If a customer is found to have been disadvantaged, lenders may need to provide appropriate redress, such as refunding excess interest or adjusting the agreement.

Who Might Be Eligible for Review?

The FCA has made clear that customers may fall within scope if they:

Took out PCP or HP finance before 28 January 2021, when DCAs were banned
Used a dealer, broker or intermediary to arrange their finance
Were not given clear information about commission or interest-rate setting
Believe the rate offered may not have been fair or transparent

The FCA also confirms that customers do not need to have submitted a complaint already to be included, the scheme intends to ensure all relevant agreements are reviewed consistently. This is outlined here.

How the Review Process Is Expected to Work

Although the final framework is still being developed, the FCA has outlined how a potential scheme could operate:

1. Lender-Led Reviews

Firms will review relevant historical agreements using FCA-set criteria.

2. Clear Customer Communication

Customers may be contacted to provide additional information or to understand the process.

3. Redress Where Appropriate

If a firm identifies that a consumer was disadvantaged, fair redress must be provided.

4. FCA Monitoring

The regulator will oversee firms to ensure consistency, fairness and compliance.

5. Defined Timelines

Once launched, the scheme will operate within clear, transparent timeframes set by the FCA.

What Drivers Can Do Now

While awaiting the FCA’s final decision, customers can prepare by:

Locating their car finance agreement (if available)
Making note of the dealership or broker used
Keeping any emails, paperwork or promotional materials
Checking whether their agreement was PCP or HP

You do not need to have full evidence at this stage, and you do not need to submit a new complaint unless advised otherwise by the FCA.

If you believe you were mis-sold car finance, contact Mis-Sold Expert to find out how they can help.

You can claim without using a claims management company; you can go to your finance provider and then to FOS, for free. Additionally, the FCA is introducing a free consumer redress scheme.