The FCA Car Finance Redress Scheme Explained

If you have ever taken out car finance and wondered whether all of it was really explained properly, you are not alone. For years, many people signed PCP, HP and other regulated car finance agreements without being told how commission worked in the background, how that commission could affect the cost of borrowing, or whether the broker arranging the deal had a financial reason to steer them towards one lender or a higher rate.

That is why the FCA’s new Motor Finance Consumer Redress Scheme matters so much. It is one of the biggest consumer financial redress exercises the UK has ever seen. The regulator estimates that firms will pay around £7.5 billion in compensation, that roughly 12.1 million agreements could be eligible, and that the average payment will be about £829 per agreement. The scheme reaches back to agreements taken out from 6 April 2007, and the FCA expects the vast majority of cases to be resolved by the end of 2027.

Those are huge numbers, but behind them is a simple point. Millions of people may have paid more for their car finance than they should have because key information was not disclosed clearly or at all.

This guide breaks down what the FCA found, why it acted, who the scheme covers, how compensation is worked out, what the timelines look like, and what you should expect next. It is based on the FCA’s March 2026 policy statement confirming the final rules for the scheme.

Why The Redress Scheme matters

For most people, car finance is not a niche financial product. It is how they buy the family car, get to work, manage childcare, or replace a vehicle they depend on every day. That is exactly why this issue has had such a wide impact.

The FCA found that across a long period, from 2007 to 2024, firms often failed to disclose important features of motor finance agreements properly. In particular, the regulator focused on discretionary commission arrangements, high commission arrangements, and certain tied relationships between lenders and brokers or dealers. In the FCA’s view, these disclosure failures were widespread, and they could leave consumers paying more than they needed to or accepting finance without understanding how the deal had been shaped.

The regulator did not decide this on a whim. It followed years of review, legal developments, consultation, and market analysis. The result is a formal redress scheme under section 404 of the Financial Services and Markets Act 2000. In plain English, that means firms now have to go back, identify affected customers, assess whether unfairness was present under the scheme rules, and pay compensation where it is due.

How We Got Here

This story did not start in 2026. The groundwork had been building for several years.

The FCA had already raised concerns about discretionary commission arrangements in its 2019 Motor Finance Review. These were arrangements in which a dealer or broker could adjust the customer’s interest rate and earn more commission by setting the rate higher. The FCA later banned those arrangements from January 2021. That was an important step, but it only stopped the practice going forward. It did not put money back into the pockets of people who had already been affected.

Then came the court decisions that helped settle the legal position. The Supreme Court’s judgment in Johnson confirmed that undisclosed commission and tied relationships could create an unfair relationship under section 140A of the Consumer Credit Act 1974. The High Court’s decision in the Clydesdale judicial review also supported the idea that compensation for undisclosed discretionary commission could be awarded on a sound basis. The FCA relied on these and other authorities when designing the scheme.

After that, the FCA consulted on a proposed redress scheme in 2025. It received more than 1,000 responses from consumers, lenders, brokers, trade bodies, investors, manufacturers, claims firms, and consumer groups. Some wanted broader compensation. Others argued the FCA had gone too far. The final rules kept the core structure but made changes to eligibility, redress calculations, and administration. The regulator says those changes improve fairness, simplicity, and cost effectiveness while still delivering meaningful redress.

So the legal and regulatory foundation is now in place. The scheme is going ahead.

The Headline Figures

Before getting into the details, it helps to understand the scale of what the FCA is doing.

The FCA estimates that around 12.1 million agreements are eligible under the final scheme rules. It expects redress payments to total around £7.5 billion based on estimated participation rates, with an average redress per agreement of about £829. Including non-redress costs, the overall expected bill to firms is about £9.1 billion. The regulator also says millions of cases should be dealt with in 2026 and that nearly all cases should be resolved by the end of 2027, although some non-complainant cases may run into early 2028, depending on timing.

These figures matter because they show two things at once. First, the FCA believes the underlying problem was widespread. Second, it expects this to be a practical scheme that firms can actually deliver at scale.

The Two Different Schemes Announced

One detail people often miss is that this is not technically a single scheme. The FCA has split it into two.

• Scheme 1 covers agreements entered into from 6 April 2007 to 31 March 2014.
• Scheme 2 covers agreements entered into from 1 April 2014 to 1 November 2024.

The reason for that split is partly legal and partly practical. Some firms argued that the FCA’s powers to cover the pre April 2014 period could be challenged because consumer credit regulation changed when it moved under the FCA. The FCA disagrees and says it has the power to cover the full 2007 to 2024 period.

Even so, it decided to create two separate schemes so that if Scheme 1 were challenged, Scheme 2 would not be delayed. In other words, customers with agreements from April 2014 onwards should not be held up because of disputes over the earlier period.

For consumers, the main takeaway is straightforward. If you had regulated car finance at any point from April 2007 to November 2024, you should not assume it is too old to matter.

What Kinds of Agreements Are in Scope?

The scheme applies to regulated motor finance agreements used to finance the purchase or hire of a motor vehicle. In practice, that is most commonly PCP, HP and conditional sale agreements. The scheme is not aimed at personal contract hire or leasing agreements because the unfair relationship provisions in the Consumer Credit Act do not apply to those in the same way. The FCA has also confirmed that the agreement needs to have involved commission arrangements connected to the deal.

It also covers agreements with firms that were FCA regulated or, for the earlier period, firms that held the relevant Office of Fair Trading licences. Even if the original lender has since sold the loan book or left the market, rules are in place to decide who administers the scheme and who pays the redress. Usually, where the original lender still exists and is solvent, that lender will be responsible for running the process, even if a later purchaser may bear part of the cost for the period it held the loan.

The Three Key Issues The FCA Identified

This is the heart of the scheme. A relationship will be presumed unfair where there was inadequate disclosure of one or more key arrangements.

Discretionary Commission Arrangements

This is the best known issue. Under a discretionary commission arrangement, the broker could adjust the interest rate offered to the customer. The more expensive the rate, the more commission the broker could earn. That gave the broker a direct financial incentive that was not aligned with the customer’s interests.

The FCA’s economic analysis found that these arrangements were linked to materially higher borrowing costs compared with flat fee arrangements. It used that analysis as part of the basis for estimating customer loss under the scheme. The regulator also says that if customers had known the broker’s commission depended on the rate, they might have questioned the pricing, looked elsewhere, or tried to negotiate.

High Commission Arrangements

Not every commission arrangement involved rate discretion, but some still involved commission at a level the FCA considers significant enough that it should have been disclosed more clearly.

The threshold for a high commission arrangement under the final rules is commission of at least 39% of the total cost of credit and at least 10% of the loan amount. The FCA says these are cases lying significantly beyond normal market levels, using a threshold above 85% of cases in its data. It also says its analysis shows an association between higher commission and higher borrowing costs, even though that does not mean commission was directly or mechanically added to the rate in each case.

Tied Arrangements

The third category covers certain contractual ties between the lender and the broker or dealer. These include exclusivity arrangements or a right of first refusal, where the lender had a preferential position before the customer could be offered finance elsewhere. If that relationship was hidden, the customer might reasonably believe they were getting access to a wider market than they really were.

There is an important exception here. Where a lender can prove there were visible links between the lender, manufacturer, and franchised dealer, the scheme may treat that arrangement as fair on the basis that the relationship would have been apparent to the consumer. The FCA also introduced a rebuttal where a tied arrangement existed on paper but was not actually operated in practice.

Who Is Excluded From The Scheme?

Not every agreement that involves commission will lead to compensation. The FCA tightened eligibility in a few areas.

Consumers are excluded if their complaint has already been considered by the Financial Ombudsman on the merits, if their claim has been decided by a court, or if they have already accepted redress. The scheme is designed to avoid re-running matters that have already reached a substantive outcome. There are some exceptions where a complaint was outside the Ombudsman’s jurisdiction or abandoned before the merits were considered, but the basic point is that the scheme respects final outcomes already reached.

High-value loans are also excluded. These are loans above the 99.5th percentile for that year, rounded to the nearest £1,000. The FCA says these are not suitable for a mass market redress scheme because they may involve atypical products and customer journeys. Borrowers with these agreements can still complain to the lender and, if needed, the Financial Ombudsman. Agreements used to purchase vehicles built or modified for accessibility remain in scope regardless of loan value.

Small commissions are treated as fair. If the commission was £120 or less (before April 2014) or £150 or less after, it’s considered too small to have influenced anything. The FCA’s view is that commission at or below those levels is unlikely to have influenced either the broker’s behaviour or the customer’s decision.

Zero APR agreements are also considered fair because if no interest was charged, the FCA says it is unlikely the consumer would have found a better finance deal even with fuller disclosure. And about 64,000 agreements where borrowers paid an interest rate lower than 95% of the market at the time, excluding 0% deals, are expected to receive no redress because they were already in the cheapest 5% of the market.

What About Older Claims And Time Limits?

This is one of the areas that often causes the most confusion. People assume that if an agreement ended years ago, it must be out of time. The FCA does not accept that as a routine answer.

Normally, consumers have six years from the end of the agreement to bring a legal claim. But that period can be extended where the relevant information was deliberately concealed and the consumer could not reasonably have discovered it sooner. Because disclosure across the motor finance market was often so poor, the FCA says it does not expect firms to routinely decide that claims are time barred under the scheme.

There is a narrower exception for cases involving only high commission, where the agreement ended before 26 March 2020. In those cases, a firm may argue the claim is out of time if it can show that the fact that commission was payable was clearly and prominently disclosed, even if the amount was not. The FCA’s reasoning is that in a high commission only case, that disclosure could have been enough to put a reasonably diligent consumer on notice to investigate further.

That logic does not apply in the same way to discretionary commission or tied arrangement cases. Simply telling a customer that some commission might exist would not usually reveal the real nature of the problem.

Importantly, if a firm says a case is out of time, it has to tell the consumer and explain why. The consumer can challenge that view, and if the dispute is not resolved, the Financial Ombudsman can review whether the firm applied the scheme rules properly.

How Compensation Is Worked Out

This is the most technical part of the scheme, but the broad structure is actually quite manageable once it is broken down.

There are two main remedies. Most people will receive what the FCA calls the hybrid remedy. A much smaller group of consumers, whose facts are especially serious and closely aligned with Johnson, will receive commission repayment plus interest without caps.

The Hybrid Remedy

For most cases, redress is the average of two figures.

The first is estimated loss, based on a percentage discount of the interest (APR) they paid – 17% for cases from April 2014 and 21% for earlier agreements, to reflect greater loss then.'

The second figure is the commission actually paid on the agreement.

The consumer receives the average of those two amounts, plus interest. The FCA describes this as a fair middle ground. It is more generous than a pure economic loss model in many cases, but more restrained than simply repaying all commission across the board.

Caps On The Hybrid Remedy

In around one in three hybrid remedy cases, compensation is capped at the lowest of three figures.

One cap is 90% of commission plus interest.

Another is the total cost of credit adjusted to account for a minimal cost offered to only 5% of the market at the time, excluding zero APR deals.

The third is the actual cost of credit calculated on a simpler basis, which may be used where the adjusted calculation cannot be done accurately because the lender lacks a full payment schedule.

The FCA says these caps stop hybrid remedy customers from receiving more than they would have paid in a fairer scenario or more than customers in the most serious cases.

The Johnson remedy

Some consumers will receive full repayment of commission plus interest, with no caps.

To qualify, the case must involve a high commission of at least 50% of the total cost of credit and at least 22.5% of the loan amount, plus either a discretionary commission arrangement, a tied arrangement, or both. These are the cases the FCA sees as closely aligned with the Supreme Court’s Johnson judgment.

Interest

Interest is added in all redress cases. The scheme uses the annual average Bank of England base rate plus 1%, with a minimum floor of 3% in any year. That floor was introduced after consultation because the FCA accepted that a very low base rate alone could understate the real cost to consumers of having been deprived of money over time. Consumers cannot separately challenge the interest rate they receive under the scheme.

So while the average payment is estimated at about £829, the real figure in any individual case can vary a lot. A consumer with a larger loan, higher commission and a long agreement may receive much more. Someone with a smaller loan or lower commission may receive less.

When All This Will Happen

The scheme has a timetable, but it is not the same for everyone.

The timeline depends on when your agreement was taken out and whether you have already complained. The table below gives a clear overview of what to expect.

Timeline overview

If you have already complained to your lender before the end of the relevant implementation period, you should be dealt with first. The lender then has three months from the end of that period to tell you whether redress is due and how much. You then have one month to accept or challenge the offer, and if you accept, payment must be made within one month. That means some Scheme 2 complainants could receive payment from November 2026, while Scheme 1 complainants could start receiving payment from January 2027.

If you have not yet complained, the process is a bit longer. Firms only need to contact people who have relevant arrangements and may be owed redress. They do not have to write to everyone. They have six months after the implementation period ends to invite those consumers to join the scheme. The consumer then has six months to respond. After that, the lender has three months to assess the case and one further month after acceptance to pay.

If you think you should be eligible but are not contacted, there is an important safety net. You can still make a complaint to the firm by 31 August 2027.

Do You Need a Claims Management Company

In simple terms, no.

The scheme is designed to be free for consumers to use directly. The FCA has been clear that you do not need a claims management company or a solicitor in order to take part. If the lender identifies that you may be owed compensation, it should contact you, explain the outcome, and tell you what to do next.

That matters because representation can be expensive. On an average payout of £829, even a moderate percentage fee could reduce what you receive.

However, some people still choose to use a claims management company such as Mis-Sold Expert. This is usually because they want support with the process. A CMC can handle the paperwork, manage communication with the lender, and keep track of deadlines. For some, this can make the process feel more straightforward and less time consuming, particularly if they are unsure how to approach a complaint or do not want to deal with it themselves.

Whether to use one comes down to your preference. You can go through the scheme yourself at no cost, or you can choose to have someone manage it for you in return for a fee.

Fraud risks and what the FCA is doing about them

Whenever large scale compensation is in the news, fraud follows close behind. The FCA has built some safeguards into the scheme.

Firms are required to use a unique reference number in communications with individual consumers and their representatives. Those communications must be sent through secure channels that meet customers’ needs. Firms also have to provide a standardised factsheet on first contact. The FCA has launched a dedicated phone line, published a list of participating firms, and is running an information campaign warning consumers about fraud.

The basic rule for consumers is common sense. If you get an unexpected message about compensation, do not hand over personal or financial information until you have checked that it is genuine. And you should be very wary of anyone asking for an upfront fee.

How The Scheme Will Be Supervised

This is not a voluntary clean up exercise. The FCA says it will supervise firms closely.

A dedicated supervisory team led by a Director has been created to oversee the scheme. Firms will have to report regularly so the FCA can monitor compliance. Senior managers will also have to attest that they are taking responsibility for the oversight and delivery of the scheme within their firms. If firms misuse exclusions, underpay, or fail to comply with the rules, the FCA says it will intervene and can use enforcement powers where necessary.

The Financial Ombudsman also has a role, but a specific one. If a consumer thinks the lender has not followed the scheme rules properly, the Ombudsman can review that. It is not there to redesign the scheme outcome from scratch in every case. Its role is to check whether the rules were applied correctly.

What This Means For The Wider Motor Finance Market

A redress exercise on this scale naturally raises questions about whether it will damage the motor finance market or make borrowing harder. The FCA’s view is that the impact should be limited.

It estimates total redress of £7.5 billion and total costs to firms of about £9.1 billion, including administration. It also says that without a scheme, complaint handling and litigation would likely cost firms over £6 billion more. In other words, the scheme is not just about compensation. It is also about giving the market a way to resolve the issue more consistently and less chaotically.

The FCA points to continued market activity and investment as signs that the sector can absorb these costs. It says the motor finance market continued to attract investment, that share prices of affected listed lenders rose after the Supreme Court judgment, that public securitisations of UK automotive loans continued, and that new car sales and lending volumes remained strong.

Its message is basically this. The right response is to compensate affected customers, deal with the past properly, and move forward with a healthier and more transparent market.

What Consumers Should Do Now

If you have already complained, you are likely already in the system and should be processed within the scheme timetable.

If you had car finance between 2007 and 2024 and have not complained, it is sensible to gather whatever paperwork you still have, such as the lender’s name, the dealer, the APR, and the agreement date. That way, if you are contacted, you can follow the case more easily.

If you are not contacted and still believe your agreement may be affected, remember that you can complain by 31 August 2027.

And if you receive communications that do not feel right, verify them before responding.

What The FCA Findings Mean for Car Finance Customers

The redress scheme is about money, but it is also about trust.

At its core, the FCA’s case is not complicated. If a broker can earn more by charging you more, you should know that. If the commission is unusually high, you should know that. If the broker is tied to a lender in a way that restricts your options, you should know that too. When those facts are hidden, the customer is not making a fully informed choice.

That is why this matters beyond motor finance. Transparency is not a technical extra. It is what lets a market work properly for ordinary people.

How Mis-Sold Expert Can Help

You can check your car finance agreement with Mis-Sold Expert to better understand how your deal was structured, including whether commission may have been involved. We break down the key details in clear, simple terms so you can see how your agreement works and what to look out for. You can also stay up to date with the latest industry developments and changes to the redress scheme, so you know what is happening and what it could mean for you.

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.