FCA Considers Industry-Wide Motor Finance Redress Scheme Covering 14 Million Agreements

The Financial Conduct Authority is consulting on a potential industry-wide redress scheme that could affect up to 14 million motor finance agreements written between April 2007 and 28 January 2021.

The review focuses on discretionary commission arrangements that were widely used before being banned in 2021. Under these models, car dealers could adjust the interest rate offered to customers within an agreed range. The higher the interest rate, the higher the commission paid to the dealer.

The FCA concluded that this structure created a risk of unfair outcomes because customers may not have understood that their interest rate could vary depending on dealer incentives.

How Many Agreements Could Be Affected

According to FCA estimates, around 40% to 45% of motor finance agreements written between 2007 and 2021 may have involved commission models under review.

Motor finance is one of the largest consumer lending markets in the UK. In recent years, more than 80% of new cars have been purchased using finance rather than outright payment.

If a formal redress scheme is introduced, lenders may be required to:

• Identify affected agreements within the review period
• Assess whether discretionary commission influenced the interest rate
• Calculate any financial impact
• Contact eligible customers directly
• Pay compensation where appropriate

Early consultation materials referenced possible average redress of around £700 per agreement, although actual compensation would vary depending on individual circumstances, agreement value and interest paid.

The FCA has not confirmed the final compensation methodology.

Total Industry Exposure Now Exceeds £2 Billion

Major lenders have already set aside significant funds in anticipation of possible redress costs:

• Lloyds Banking Group – approximately £1.95 billion
• Barclays – £325 million
• Santander UK – £295 million
• Close Brothers – around £300 million
• Bank of Ireland UK – roughly £350 million

Combined, provisions across the sector now exceed £2 billion, with some analyst projections suggesting total industry exposure could reach £8 billion or more, depending on final redress rules and participation levels.

Provisions are accounting measures. They do not confirm that all agreements were mis-sold. They reflect financial planning for potential liabilities.

Complaint Handling Pause

The FCA introduced a temporary pause on certain complaint handling deadlines while it completes its review. This means some lenders are delaying final responses until regulatory guidance is confirmed.

A final decision on the structure of any redress scheme is expected in 2026.

Once confirmed, lenders may need to proactively review affected agreements rather than waiting for individual complaints.

How This Differs From PPI

Motor finance redress has been compared to the Payment Protection Insurance scandal. However, there are important differences:

• Discretionary commission was banned before becoming a long-running redress issue
• The FCA is coordinating the review centrally
• A structured compensation scheme may standardise how redress is calculated

While the number of agreements in scope is significant, the regulatory approach is more defined at an earlier stage than PPI was.

What Could This Mean for You

If you took out a Personal Contract Purchase or Hire Purchase agreement before 28 January 2021, your agreement may fall within the FCA review period.

The key issues include:

• Whether discretionary commission was applied
• Whether your interest rate was increased to generate commission
• Whether this was clearly explained at the time
• Whether the overall relationship could be considered unfair

Not every agreement will qualify for compensation. Each case depends on its specific documentation and disclosure.

If you are unsure whether your agreement involved discretionary commission, you can request your finance documents from your lender at no cost.

You can also ask Mis-Sold Expert to review your agreement details and explain how commission may have been applied. This does not guarantee compensation. You remain free to complain to your lender yourself or seek independent advice.

If you receive a final response from your lender and are not satisfied, you can refer your complaint to the Financial Ombudsman Service within six months.

The Road Ahead for Motor Finance

With more than 14 million agreements potentially within scope and sector provisions exceeding £2 billion, motor finance commission review remains one of the most significant conduct issues currently facing UK lenders.

Final clarity will depend on the FCA’s 2026 decision. Until then, lenders continue to adjust financial forecasts while customers consider whether their agreements may be affected.

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.