The UK’s financial regulator has taken another step towards launching a redress scheme for motorists affected by unfair commission practices in car finance agreements. The Financial Conduct Authority has confirmed that it received around 1,000 responses to its consultation on how compensation should be delivered to affected consumers.
This process forms part of the regulator’s wider response to the motor finance commission scandal, which centres on historic agreements where customers were not clearly informed that brokers or dealers received remuneration for arranging their credit. In many cases, that structure created incentives to increase interest rates without the customer’s knowledge.
The FCA now expects to publish the final rules for the compensation scheme in late March.
How the proposed compensation scheme would work
Under the regulator’s proposed framework, lenders and finance providers would take responsibility for identifying affected customers and calculating redress.
Once the final rules are published, firms will have an implementation period of three months to put the scheme into operation. Older finance agreements may receive a slightly longer timeline, with up to five months allowed for implementation.
A key change involves the way existing complaints will be handled. Previously, consumers who had already complained might have been asked whether they wished to opt out of the compensation scheme and continue with their complaint through other channels.
The FCA now plans a simpler approach. Customers who submit complaints before the scheme begins would automatically fall within the process. Their lender would review the case and, within three months after the implementation period ends, inform them whether compensation is owed and how much they should receive.
Consumers would then have the option to accept the redress immediately, without waiting for any further regulatory determination.
Communication changes and fraud safeguards
The regulator also addressed how firms should contact affected customers.
Finance providers will not be required to use recorded delivery letters when issuing compensation decisions. Instead, lenders will be able to use a range of communication channels that suit consumers’ needs, provided suitable safeguards exist to reduce the risk of fraud.
This approach reflects the scale of the expected exercise. The FCA believes the scheme could involve millions of consumers who took out motor finance agreements during the years when commission arrangements were commonly used.
Compensation expected from 2026
If the timeline proceeds as expected, the regulator anticipates that compensation payments could begin during 2026.
The FCA continues to encourage motorists who suspect their agreement included undisclosed commission to take action now. The regulator’s guidance remains clear: anyone who believes they were not informed about such arrangements in their car finance deal should submit a complaint to their lender as soon as possible.
Doing so ensures that the complaint is registered ahead of the scheme’s launch and that the consumer’s case will be reviewed once the final rules take effect.
For many motorists, this could be the first opportunity to recover money linked to finance agreements that may have been structured in ways they did not fully understand at the time.
Who could qualify for compensation?
Eligibility depends on the specific structure of the deal. Many agreements included so-called discretionary commission models, where the broker had influence over the interest rate applied to the loan. In those situations, a higher interest rate frequently meant a higher payment to the intermediary arranging the finance.
Customers who entered into a motor finance agreement and did not receive clear information about any commission involved may fall within the scope of the FCA’s redress scheme.
Typical scenarios that could qualify include motorists who:
- Took out PCP or HP car finance through a dealership or broker
- Signed agreements between 2007 and January 2021, when discretionary commission models were widely used
- Received no clear explanation that the commission formed part of the finance arrangement
- Paid interest rates that may have been influenced by commission incentives
The exact eligibility criteria will become clearer once the FCA publishes its final rules.
A quick qualification check provides the simplest way to understand whether a claim may exist.
Use our motor finance eligibility tool to assess your agreement. The process takes a few minutes and helps determine whether a PCP or hire purchase deal could qualify.
