The Financial Conduct Authority (FCA) has published an update on the progress of its motor finance compensation scheme consultation, confirming that engagement across the industry has been extensive and constructive. The regulator has received a broad range of feedback from lenders, brokers, consumer representatives, and other stakeholders, all focused on ensuring the proposed redress process is fair, practical, and capable of restoring long-term confidence in the market.
The consultation deadline, originally set for 18 November 2025, has now been extended to 5pm on 12 December 2025, allowing additional time for stakeholders to provide feedback and for the FCA to consider the detailed responses received so far.
Methodology for Calculating Redress
As expected, much of the initial feedback has centred on the methodology for calculating compensation. Stakeholders have explored how redress should be assessed where discretionary commission arrangements may have resulted in consumers paying higher interest rates.
Where detailed commission data is available, firms would be expected to calculate compensation based on the difference between what the customer actually paid and what they would have paid had no discretionary commission been applied. This amount would then be increased by simple interest at the Bank of England base rate plus one percentage point, compensating consumers for the time they were out of pocket.
The FCA’s current proposal has been welcomed for its simplicity but has also prompted suggestions for refinement.
Time Period for the Scheme
Another issue raised concerns the time period that the scheme should cover. Stakeholders have sought clarity on whether the proposed window — running from 6 April 2007 to 1 November 2024 —fully captures the relevant agreements. The FCA has acknowledged this feedback and is considering how best to balance inclusivity with administrative efficiency.
Independence and Oversight Mechanisms
Confidence in the scheme will depend heavily on robust oversight. The FCA has therefore invited views on how independent mechanisms can strengthen transparency, including the potential role of the Financial Ombudsman Service and other alternative models. Stakeholders have emphasised that strong governance and independent review processes will be crucial to ensuring both consumer trust and operational credibility.
Proportionality for Smaller Firms
Smaller lenders and brokers have raised practical questions about how to implement the scheme in a cost-effective way, particularly where the number of eligible agreements is limited. The FCA has recognised these concerns and is examining how proportionality can be built into the framework. The regulator aims to ensure that all firms — regardless of size — can comply effectively.
Safeguards Against Fraud
With millions of agreements potentially in scope, the FCA has highlighted the importance of preventing fraud and duplicate claims. Stakeholders have offered suggestions on verification methods and data-sharing protocols to ensure that genuine consumers receive compensation promptly while maintaining robust protections against misuse of the system.
Relationships Between Manufacturers and Captive Lenders
Finally, the FCA has noted feedback regarding the commercial relationships between motor manufacturers and their captive lenders, particularly where these links may influence lending practices or interest rates on new car purchases.
A captive lender is a finance company that is owned or controlled by a motor manufacturer and exists primarily to provide finance for that manufacturer’s vehicles.
For example, Ford Credit, Volkswagen Financial Services, and Toyota Financial Services are all captive lenders. They’re part of the same corporate group as the car brands themselves. Their purpose is to make it easier for customers (and dealerships) to buy or lease the manufacturer’s cars by offering in-house finance options such as PCP or Hire Purchase agreements.
In the context of the FCA’s consultation, the relationship between manufacturers and their captive lenders matters because it can create commercial ties that influence how interest rates or commissions were set. For instance, a maker might have incentivised its captive lender or dealers to promote certain finance deals on new cars, potentially affecting transparency and competition. The Financial Conduct Authority wants to understand how those relationships should be treated within the compensation scheme to ensure fairness and consistent oversight.
Looking Ahead
The consultation’s extension to 5pm on 12 December 2025 provides a valuable opportunity for further reflection and refinement before final rules are introduced in 2026. If the process continues on its current trajectory, the scheme has the potential to provide meaningful redress for affected drivers and also to rebuild confidence in how motor finance operates.
