Updated: 05 December 2025
Originally Published: 30 June 2025
What the FCA’s December 2025 announcements mean for drivers reviewing mis-sold car finance
The car finance scandal has moved quickly over the past year. Millions of drivers are now checking whether they paid more than they should have because of hidden commissions, unclear interest rates or undisclosed commercial relationships between dealerships and lenders.
Until this week, many people were unsure when decisions would resume, when compensation might apply or how the upcoming FCA redress scheme would work. That uncertainty lifted slightly on 3 December 2025, when the FCA published PS25/18 [1] and confirmed the next major milestone in the process. The regulator also released a separate statement confirming that the pause on motor finance complaint handling will lift on 31 May 2026 [2]. Leasing complaints are not part of this process and the pause for those agreements has already been lifted.
Below is a clear explanation of the latest position. This guidance brings together the FCA’s December publications, the extended consultation, the Supreme Court’s August ruling and what these changes mean for anyone preparing a car finance claim and awaiting the car finance compensation update.
The FCA’s Consultation: Where Things Stand in December 2025
Back in October 2025, the FCA opened a consultation on a new redress scheme [3] for drivers who may have been affected by historic mis-selling. The original plan was to close the consultation in November. As feedback started coming in, it became clear that lenders, consumer organisations and industry groups needed more time to give detailed responses. To make sure everyone had a fair chance to contribute, the FCA extended the deadline to 12 December 2025 at 5pm [4].
The aim of the consultation is to finalise a structured compensation framework for mis-sold car finance agreements entered into between: 6 April 2007 and 1 November 2024
This 17-year window reflects the period in which the FCA believes unfair commercial practices were most widespread.
Why the consultation was extended
The FCA recognised the scale and complexity of the issue. Millions of agreements fall within scope, and the regulator received substantial submissions from solicitors, consumer groups, lenders and industry bodies. This extended timeframe allows the FCA to assess feedback and refine the final scheme.
How many agreements might be affected?
The FCA estimates that up to:
- 14.2 million agreements may be unfair
- Representing 44 per cent of all motor finance loans since 2007
Most concerns involve:
- Discretionary commission arrangements (DCAs)
- High commission structures
- Exclusive or preferential contracts between lenders and brokers
These practices were rarely explained clearly to customers, creating the foundations of the current scandal.
Key Issues That Made Many Agreements Potentially Unfair
The FCA has identified three main areas where a motor finance agreement may be considered unfair. These criteria guide whether a driver may be owed compensation.
1. Discretionary Commission Arrangements (DCAs)
This is where the broker, usually the dealership, could change the interest rate within a band. The higher the interest rate chosen, the more commission they earned.
DCAs were banned in January 2021 [5], but they were common for more than a decade. Many customers were never told that the dealership had this level of control or that their interest rate might have been increased for profit.
2. High Commission Structures
An agreement may be unfair when:
- Commission was 35 per cent or more of the total credit cost
- And 10 per cent or more of the total loan amount
- And this was not explained clearly
These thresholds apply specifically to the proposed redress scheme. They should not be used as benchmarks in other financial sectors.
3. Exclusive or Preferential Commercial Agreements
These arise when a dealer tells a customer they are searching multiple lenders for the best deal, but in reality the dealer had:
- An exclusivity contract
- A right of first refusal
- Or another form of preferential tie
This meant the dealership presented limited options as if they were genuine comparisons. Customers were misled into believing the rate offered was competitive.
When lenders can challenge the presumption of unfairness
Lenders will be allowed to rebut unfairness in specific scenarios. For example:
- If they can demonstrate the customer received full and clear disclosure
- Or if the broker actually offered the lowest available rate despite the commission model
This means compensation will not be automatic, but many agreements will still meet the criteria.
Who Is Still Eligible to Claim?
You may still be eligible for compensation if certain parts of your finance deal were not explained properly. The proposed scheme is designed to cover customers who:
- Took out a regulated motor finance agreement between 6 April 2007 and 1 November 2024
- Were not given clear information about how commission worked
- Were not told that the dealer could influence or adjust their interest rate
- Were not shown how their rate was set or why it was chosen
- May have ended up paying more because the structure rewarded dealers for setting higher rates
- In short, if you were not given the full picture at the time, your agreement may still fall within scope.
You may still be eligible even if:
- You no longer have the car
- You no longer have the paperwork
- The dealership closed down or changed ownership
- You used a broker or car supermarket instead of a main dealer
- Your agreement is more than ten years old
The FCA expects lenders to rely heavily on their internal records, especially where customers cannot provide complete documentation.
What the FCA Announced on 3 December 2025
The FCA issued two major updates.
1. PS25/18: Changes to Motor Finance Complaint Handling Rules
This update sets out what firms need to do as they get ready for the new redress scheme and how they should handle complaints once the pause comes to an end. It gives clearer guidance on how lenders should approach evidence, disclosure and fairness, especially in cases where commission arrangements were complex or never explained properly. The FCA also stresses that consumers must not be put at a disadvantage simply because of the pause or because older commission models were difficult to understand.
2. Pause on complaint handling will lift on 31 May 2026
This is one of the biggest developments of the year.
What it means
- Lenders will begin issuing decisions on trapped complaints from 31 May 2026
- Complaints submitted between January 2024 and May 2026 will all be part of this process
- Firms must prepare now for very high volumes
- The pause does not apply to leasing complaints, which can already proceed
Why the pause was extended previously
The FCA had to deal with:
- Gather data
- Develop the redress scheme
- Assess consultation feedback
- Model compensation calculations
- Review Supreme Court implications
The lifting date of 31 May 2026 gives lenders an obvious point at which they must restart complaint decision-making.
Compensation: How the FCA Proposes to Calculate Redress
The FCA seeks fairness in balance with practicality. Millions of cases are within scope, and the compensation model needs to be efficient but also reflect consumer harm.
1. The hybrid formula (applies to most cases)
Compensation will be based on the average of:
- What the customer likely overpaid because of undisclosed commission
- The total commission paid on the agreement
Example:
If a loan had a 10 per cent APR but should have been around 8.3 per cent without hidden commission, the customer overpaid because the rate was inflated. That inflation feeds into the calculation.
2. Johnson-type cases (serious breaches)
A small minority will receive:
- The full commission amount
- Plus interest
This applies where:
- Commission made up at least 50 per cent of the total credit cost
- And 22.5 per cent or more of the total loan amount
- And there was a strong failure of disclosure combined with consumer vulnerability
3. Interest added to redress
- Simple interest
- Bank of England base rate plus 1 per cent
- FCA estimates an average rate of 2.09 per cent
Average compensation estimate
The FCA expects the average compensation payment to be around £700 per agreement [6], although this is only an estimate. The actual amount will differ from person to person because it depends on things like:
- The size of the loan
- How the commission was structured
- How much the interest rate was increased
- The length of the contract
- The customer’s individual circumstances
Across the whole industry, the FCA believes total payouts could reach up to £8.2 billion once the scheme is in full effect.
The Supreme Court Ruling (1 August 2025): What It Means Today
The UK Supreme Court heard three landmark appeals involving Close Brothers and MotoNovo [7]. Only one case succeeded: Marcus Johnson.
Why Johnson won
The Court found that:
- The commission was significant and undisclosed
- Johnson was commercially inexperienced
- The lender did not explain the commercial relationships
This combination created an unfair relationship under the Consumer Credit Act.
Why the other cases were dismissed
The Supreme Court made it clear that not every agreement using commission will qualify for compensation. The judges explained that:
- The commission model itself is not automatically unlawful
- Each consumer must show that the lack of disclosure happened in their own agreement
- Vague wording such as “a commission may be paid” might not be good enough, but it is not unfair in every situation
- Every claim needs to be looked at on its own facts rather than treated as part of a blanket category
- In other words, the court wants evidence of what happened in each person’s case rather than assuming all commission-based agreements were unfair.
The practical effect
The ruling narrowed the path to automatic compensation. Claims now rely more heavily on:
- Clarity of disclosure
- How the rate was set
- Consumer understanding
- Evidence of unsuitability or unfairness
This is one reason the FCA’s redress scheme is so important. Without it, consumers would face a complex, lengthy legal process for every individual case.
How the Redress Scheme Will Work
The FCA wants a scheme that is simple, standardised and accessible.
1. Lenders identify affected customers
Lenders must review their own data and contact customers who may be eligible.
2. If you have already complained
You will be automatically included unless you choose to opt out.
- Lender will contact you within three months of the scheme opening
- You will then have one month to confirm whether you want to remain in
3. If you have not complained
- Lender must contact you within six months of the scheme opening
- You will have six months to opt in
4. If your lender no longer has your details
You can still join the scheme.
- You will have one year from the scheme start date to request a review
5. Challenging the outcome
If you disagree with the lender’s decision, you can ask the Financial Ombudsman Service to check whether the rules were applied correctly.
What You Should Do Now
The FCA has not set a car finance claims deadline, but timing matters. Submitting early protects your position.
Why begin filing?
- Your complaint will be logged before the scheme opens
- You secure your place in the review queue
- You avoid delays when the pause lifts in May 2026
- Some lenders may still settle early where disclosure failings are obvious
You do not need full paperwork
The FCA has made it clear that:
- Bank statements,
- Partial records, and
- Vehicle details
may be enough to trace your agreement.
This is important because many older agreements are missing documents.
Routes to Making a Car Finance Claim
You can choose the route that feels right for you.
DIY Complaint
- Free
- Straightforward for simple cases
- Templates available from FOS, Citizens Advice and consumer groups
Claims Management Company (CMC)
A regulated CMC can:
- Review your finance agreement
- Identify signs of mis-selling
- Draft and submit the complaint
- Trace missing agreements
- Handle all communication with the lender
- Work on a No Win, No Fee basis
This route is helpful for people who feel unsure about the process or who have multiple agreements.
Solicitor
- Suitable for complex or high-value cases
- May involve fees
- Can be useful where legal interpretation is required
Important note
Avoid cold callers or unregulated companies.
Only use FCA-authorised claims firms.
Updated Timeline of Key Events
Reflecting the FCA’s 3 December 2025 announcements
- 2007–2021 – Discretionary commission arrangements widely used across the UK
- 28 Jan 2021 – FCA bans DCAs
- Oct 2024 – Court of Appeal sides with consumers in key cases
- Apr 2025 – Supreme Court hears final appeals
- 1 Aug 2025 – Supreme Court ruling narrows automatic redress
- 7 Oct 2025 – FCA opens consultation on a formal redress scheme
- 5 Nov 2025 – FCA extends consultation deadline
- 3 Dec 2025 – FCA publishes PS25/18
- 3 Dec 2025 – FCA confirms pause on complaint handling will lift 31 May 2026
- Dec 2025 – Pause on leasing complaints already lifted
- 12 Dec 2025 – Consultation closes
- Early 2026 – FCA expected to confirm final design of redress scheme
- 31 May 2026 – Lenders resume complaint handling
Should You Still Start a Claim?
Yes. Even though the Supreme Court ruling narrowed some of the arguments people can rely on, many valid cases still exist. Hidden commissions, inflated interest rates and weak explanations caused real harm for a large number of drivers. Starting your claim now is still the most sensible step.
Submitting a complaint today:
- Protects your place in the process
- Ensures you are automatically included when the final scheme opens
- Gives you the best chance of being reviewed early
- Puts you ahead of the surge in claims expected in mid-2026
There is no formal deadline yet, but waiting does not offer any advantage. Beginning now simply strengthens your position.
Final Thoughts
The FCA’s latest December updates have finally brought more clarity to a situation that has felt uncertain for a long time. The redress scheme is now taking shape, and there is a clear date for when the complaints pause will lift. This gives both consumers and lenders a better sense of what comes next.
Many drivers may still be entitled to compensation, especially where hidden commissions or undisclosed arrangements increased the cost of their finance. The process is becoming more structured and more reliant on evidence, but it remains open to anyone who can explain their experience and provide the basic details needed to review their agreement.
Acting early can make a real difference. If you think your finance deal included terms that were unclear or a commission that was never explained, raising your complaint now ensures it is recorded and ready to be reviewed when the scheme opens. Understanding the FCA’s proposals and key dates also helps you feel more prepared and gives you a clearer sense of what to expect.
You do not need every document or an exact memory of the agreement to start. Most start with very few details. The first step is giving the lender something to work from.
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References:
- the FCA published PS25/18 - https://www.fca.org.uk/publications/policy-statements/ps25-18-changes-handling-rules-motor-finance-complaints
- pause on motor finance complaint handling will lift on 31 May 2026 - https://www.fca.org.uk/news/statements/pause-motor-finance-complaints-handling-lift-31-may-2026
- Back in October 2025, the FCA opened a consultation on a new redress scheme - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme
- the FCA extended the deadline to 12 December 2025 at 5pm - https://www.fca.org.uk/news/statements/motor-finance-compensation-scheme-consultation-progress-and-timing
- DCAs were banned in January 2021 - https://www.fca.org.uk/publication/consultation/cp24-15.pdf
- The FCA expects the average compensation payment to be around £700 per agreement - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme
- The UK Supreme Court heard three landmark appeals involving Close Brothers and MotoNovo - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf