The Financial Conduct Authority (FCA) has issued a strong warning to UK lenders [1], urging them to cooperate on consumer compensation in the wake of the car finance scandal that could see billions returned to motorists.

In a short message to the financial industry, the UK’s top financial watchdog has told banks to stop delaying the rollout of a redress scheme that could affect millions of customers who entered into car finance deals tainted by undisclosed or excessive commissions. The FCA is now pushing for a swift consultation process, following the Supreme Court ruling that clarified the boundaries of unfair commission practices in vehicle financing.

FCA Chief Executive Nikhil Rathi [2] said: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.” He added: “We want to make sure that getting to that position is fair and as easy as possible for those consumers who may be affected.”

A Pivotal Shift Following the Supreme Court Ruling

The FCA's statement comes in the wake of a recent first-instance judgement in the case of Broker v Johnson [3], in which the Supreme Court allowed the claim of one motorist who was charged excessive commission but was not told how much commission he was paying. Although the Supreme Court held that car dealers will not automatically be treated as if they owe fiduciary duties to their customers, it also said that arrangements that give rise to an unfair relationship, such as through the use of discretionary commission arrangements (DCAs), may be unlawful.

It has major implications for both PCP claims and general car finance claims where finance providers allowed the dealer to hike up interest rates to boost their own commission without clear disclosure to the customer.

Customers who have been misled through the financing process are now starting to come forward. A number of these people had agreed to take out car finance deals due to hard selling but didn't realise they had been paying inflated charges.

If you believe your agreement may have been affected, you can explore your options regarding car finance claims to find out if you're eligible for compensation.

FCA Urges Firms to Cease Negotiating Terms of Payout

The FCA’s proposed redress scheme could cost the motor finance industry between £9 billion and £18 billion [4], prompting growing concern among lenders about the scale of potential payouts. However, Mr Rathi emphasised that dragging out negotiations or disputing the scope of eligibility will only erode public confidence further.

“This must not become another drawn-out scandal,” Mr Rathi noted. “The industry has had enough time to get its house in order.”

The FCA will consult on the detail of a redress scheme in October 2025 [5]. This is likely to set out how the scheme would work, which would not only be open to DCAs but may also be open to other situations where a finance agreement is ruled to have been unfair. If successful, the first payments would be made from early 2026. Consumers can still raise an individual complaint directly with the lender.

Industry Provisions Still Falling Short

However, in light of the severity of the issue, existing provisions within major lenders are inadequate. It is thought that only £2 billion has been provisioned by major players such as Lloyds, Barclays and Santander [6].

While certain providers are said to be asking for exemptions (particularly when commission structures were not discretionary), consumer groups maintain that the scope of the problem justifies full transparency and reimbursement irrespective of commission structures.

For motorists who suspect they were impacted, filing a claim related to PCP claims could be a step toward recovering unfair costs. You can learn more about your rights and the claims process by visiting this guide to PCP claims.

The Role of Dealers and Broker Networks

Although lenders are under regulatory pressure, car dealers and brokers have also been instrumental in driving commission-based packages. A significant portion of these dealers and brokers were part of networks in which the freedom to set interest rates meant direct personal profit.

It has been revealed by a few former dealers that they preyed on vulnerable customers by using opaque and over-inflated agreements which they believed few would question in detail. Customers with poorer credit ratings or fewer financing options were offered higher rates but did not know about the commissions built in.

What This Means for Consumers

The emerging redress framework could benefit up to 14 million motorists [7] who entered into car finance arrangements between 2007 and 2021. The average payout per claimant is expected to be around £950 [8], though some cases may warrant much more depending on the extent of overcharging.

The FCA has been clear: individuals who already submitted complaints to their lenders will be included in the scheme. Consumers wishing to make new complaints should do so directly with the lender themselves. However, many consumers find it more reassuring to use claims management firms who only charge on a no win, no fee basis.

To make informed decisions, consumers are advised to review the history of the car finance scandal and understand how their own agreement may fall within the affected scope.

Next Steps: Redress Timeline and Consumer Action

• August 2025: FCA confirms commitment to public consultation
• October 2025: Formal consultation period begins
• Early 2026: Compensation scheme expected to begin operating
• Ongoing: Consumers can file direct complaints with their lender now

In the background, work continues between the industry and the FCA on what limits and qualifying criteria might be applied to any redress offer. Consumer groups have been vocal that, in whatever form, future proposals must be fair and as simple as possible.

Motorists can stay informed by keeping up with the latest updates on car finance claims in the UK, where developments from the FCA and courts are regularly summarised for public reference.

Final Thoughts: A Moment of Reckoning for the Industry

This is not the first time the UK financial sector has faced a reckoning over mis-selling. From PPI to interest rate swaps, the lessons of past compensation schemes should inform how the car finance scandal is handled. Consumers are owed not only financial redress but also transparency and accountability.

The FCA has urged firms to work constructively and co-operate with its plans for a motor finance redress scheme [9], ensuring customers are treated fairly and that any compensation is delivered consistently and promptly. 

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1. Financial Conduct Authority (FCA) has issued a strong warning to UK lenders - https://www.ft.com/content/5031a546-db10-42e6-8a37-7eecbf3bbef5
2. FCA Chief Executive Nikhil Rathi statement - https://www.fca.org.uk/news/press-releases/fca-consult-motor-finance-compensation-scheme 
3. judgement in the case of Broker v Johnson - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
4. redress scheme could cost the motor finance industry between £9 billion and £18 billion - https://www.reuters.com/business/finance/uks-fca-proposes-9-billion-18-billion-pound-redress-scheme-motor-finance-claims-2025-08-03
5. FCA plans to consult on the detail of a redress scheme in October 2025 - https://www.fca.org.uk/news/press-releases/fca-consult-motor-finance-compensation-scheme
6. £2 billion has been provisioned by major players such as Lloyds, Barclays and Santander - https://www.reuters.com/business/finance/uks-fca-proposes-9-billion-18-billion-pound-redress-scheme-motor-finance-claims-2025-08-03
7. redress framework could benefit up to 14 million motorists - https://www.theguardian.com/business/2025/aug/03/city-regulator-unveils-car-loan-compensation-scheme-worth-up-to-18bn
8. average payout per claimant is expected to be around £950 - https://www.birminghammail.co.uk/motoring/motoring-news/14-million-drivers-could-receive-32193839
9. motor finance redress scheme - https://www.fca.org.uk/news/statements/fca-consult-compensation-scheme-motor-finance-customers