Committee publication · Correspondence · 14 October 2025

Correspondence from FCA on motor finance compensation scheme, dated 7 October 2025

Inquiry: Work of the Financial Conduct Authority

Summary

The FCA has launched a consultation on an industry-wide motor finance compensation scheme for customers treated unfairly between 2007 and 2024. The scheme proposes to compensate approximately 14.2 million customers (44% of agreements) affected by inadequate disclosure of commissions and contractual ties. Estimated total cost is £11 billion at 85% take-up, with consumers receiving average compensation of £700 per agreement. The consultation closes 18 November 2025.

Key findings

FCA's review of 32 million agreements found widespread failures to disclose commissions and contractual ties between lenders and brokers, leaving consumers unable to make informed decisions and sometimes overpaying.
Recent court rulings (Supreme Court 1 August 2025, High Court 17 December 2024) established legal clarity that non-disclosure of commissions and contractual ties constitutes unfair and unlawful conduct.
Estimated 14.2 million agreements (44% since 2007) will be considered unfair due to discretionary commissions, high commissions (≥35% of credit cost and 10% of loan), or contractual ties giving lenders exclusivity.
Total estimated cost of £11 billion comprises £8.2 billion in consumer redress (at 85% take-up) plus £2.8 billion in implementation costs; consumers average £700 compensation per agreement.
FCA consulting on extending motor finance complaint deadlines to 31 July 2026 and launching £1 million campaign against misleading claims management practices charging excessive fees.

Tone

Factual

Topics

financial-servicesconsumer-protectionmotor-financeregulatory-compliance

Key actors

Financial Conduct Authority (FCA), Dame Meg Hillier, Nikhil Rathi, Financial Ombudsman Service, Solicitors Regulation Authority (SRA), Information Commissioner's Office (ICO), Advertising Standards Authority (ASA)

Notable line

“M any firms broke laws and regulations in force at the time by failing to disclose important information.”

Key Quotes

“Our extensive review, covering data from 32m agreements, found widespread failures to adequately disclose the existence and nature of commission and contractual ties between lenders and brokers.”
— Nikhil Rathi, FCA Chief Executive · explaining the scope of FCA findings on disclosure failures

“A compensation scheme is the best way to ensure consumers who have lost out receive fair compensation in an orderly, consistent, quick, and efficient way, while ensuring a well-functioning and competitive motor finance market.”
— Nikhil Rathi, FCA Chief Executive · justifying the proposed compensation scheme approach

“Based on our proposals, we estimate 14.2m agreements – 44% of all agreements made since 2007 – will be considered unfair because they involve inadequate disclosure of one or more of the following”
— Nikhil Rathi, FCA Chief Executive · detailing scale of affected agreements

“We have heard concerns about the impact of paying redress on non-bank, non-captive lenders focused on non-prime markets. Access to funding for such non-prime lenders had been a challenge even before the motor finance commissions issue became prominent.”
— Nikhil Rathi, FCA Chief Executive · acknowledging potential market impacts on non-prime lenders

“We have also launched a £1m communication campaign to make people aware they don't need to use a CMC or law firm to seek motor finance compensation, and that they could lose around 30% of any compensation they're owed if they do.”
— Nikhil Rathi, FCA Chief Executive · describing measures to protect consumers from claims management companies

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Source · parliament.uk record ↗