What it means for UK consumers
The Financial Conduct Authority (FCA) has opened consultation on a nationwide Motor Finance Consumer Redress Scheme — the largest compensation proposal since PPI.
If approved, it could return ÂŁ8.2 billion to drivers and cost lenders another ÂŁ2.8 billion to administer.
Why this matters
Between 2007 and 2024, millions of UK car buyers were unknowingly charged inflated interest rates because lenders paid secret or poorly-disclosed commissions to car dealers.
The Supreme Court and High Court have now confirmed this practice was unfair and unlawful.
The FCA’s investigation, covering 32 million agreements, found that:
- Most customers were never told about commissions.
- In over 40% of cases, disclosure was inadequate.
- Borrowing costs were on average 17–20% higher when a discretionary commission applied.
Who may qualify
The scheme would include regulated car-finance agreements made between 6 April 2007 and 1 November 2024 where a commission was paid by the lender to the broker or dealer.
About 14 million agreements (44% of the total) are expected to be judged unfair because they involved at least one of:
- A discretionary commission arrangement (DCA) – the dealer could raise your rate to earn more.
- A high commission – over 35% of the cost of credit and 10% of the loan.
- A contractual tie – where a lender had exclusivity or “first refusal” with the dealer.
Average compensation is expected to be around ÂŁ700 per loan, though some drivers could receive substantially more.
How consumers will be contacted
- Already complained? You’ll be automatically included unless you choose to opt out.
- Never complained? Your lender should contact you within six months of the scheme starting to invite you to opt in.
- If you’re not contacted, you can ask for a review within one year of launch.
- Participation will be free — you don’t need to use a claims-management company or solicitor (who could take up to 30% of your payout).
How redress will be calculated
Compensation will reflect either:
- The commission plus interest (for the most serious cases, like Johnson v FirstRand Bank), or
- The average of the estimated overpayment and the commission, plus interest at the Bank of England base rate + 1% from the time of overpayment.
Timetable
- Consultation closes 18 November 2025.
- Final rules expected early 2026.
- Payments likely to begin late 2026.
What consumers should do now
✅ Wait for formal contact – don’t pay anyone promising faster results.
✅ Keep records – finance agreements, dealer paperwork, or loan references will help identify eligibility.
✅ Stay informed – updates will appear on the FCA website and through legitimate consumer channels such as Get SAFE.
Why this matters beyond car finance
This consultation signals a cultural shift: transparency and fairness are becoming non-negotiable in consumer finance. Hidden incentives erode trust, inflate costs, and harm markets.
The FCA’s approach — proactive, industry-wide, and evidence-based — could become the new standard for consumer redress in the UK.
Sources:
FCA Consultation Paper CP25/27 (October 2025) – Motor Finance Consumer Redress Scheme.
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The fallout from the motor finance scandal is likely to cost Lloyds Banking Group and Close Brothers materially more than they had already set aside, the lenders have warned, prompting a dip in their share prices.
Lloyds, which was one of the most significant players in the UK car loans market, had already made the largest provision for the matter in the industry at ÂŁ1.15 billion to cover redress costs, but said that was probably no longer enough. Analysts have calculated that a further ÂŁ850 million may be required.
Shares in the lender fell by more than 3 per cent in response to the announcement.
Close Brothers, another major car finance lender, also warned that the compensation scheme for the scandal is likely to cost “materially” more than the £165 million it has provisioned for. Its shares were down by about 9 per cent in response to its warning.