The Financial Conduct Authority (FCA) has launched a consultation on a proposed motor finance compensation scheme [1], marking a significant development in the ongoing scrutiny of car finance practices in the UK. The redress scheme will be used to compensate millions of people for mis-selling that has been uncovered in the motor finance sector over the last 18 years.

The FCA said the decision to set up the scheme follows a "considerable public concern" over the unfair agreements and comes in the wake of a recent Supreme Court judgement, which found mis-selling to have been "extensive" in the car finance industry.

This is a consultation which will run over several weeks and stakeholders are being asked to comment on eligibility criteria, proposed methodologies to calculate the level of redress and practical aspects of how to best deliver consumers' redress. The FCA's aim is to finalise the scheme with a view to payments being made in 2026, subject to the outcome of the consultation.

14 Million Unfair Motor Loans Due Compensation

The FCA estimates there are about 14 million motor finance agreements that were mis-sold and could be eligible for compensation [2]. The scheme would be open to cover agreements entered into from 6 April 2007 to 1 November 2024. This covers almost 20 years of motor finance activity. The FCA is expecting the average consumer to receive about £700 per agreement, though this will vary case by case. 

This development follows a Supreme Court ruling confirming widespread mis-selling, reinforcing concerns over lender practices [3]. The judgement pointed out that it is very likely that there are a large number of consumers who were not made aware of either the nature of the contract they were signing or of how the commissions could affect the total cost of borrowing.

For consumers navigating this process, understanding the scale and scope of potential car finance claims is crucial. The FCA said the aim of the scheme is to ensure it is as simple as possible for consumers who have lost paperwork or moved house since entering into a finance agreement to access compensation.

Key Details of the Proposed Redress Scheme

The consultation outlines several important aspects of the scheme:

• Eligibility and Scope: The size of the scheme will be agreements from April 2007 to November 2024. This will include both fixed and PCP finance agreements. It covers agreements where the payment of commission may have affected the overall cost of credit, but also agreements specifically referenced in the Supreme Court judgement.
• Redress Calculation: It is intended that redress will be calculated based on a notional loss of earnings combined with the amount of commission paid. Interest will be calculated on an ex post basis using simple interest from the date of overpayment. FCA will make available to firms detailed modelling assumptions for the purposes of calculating payouts.
• Timelines: The consultation has now opened as of 7 October 2025 and responses will be received over several weeks. The FCA is also seeking to extend the deadline for firms to issue final responses to certain motor finance complaints to 31 July 2026. Subject to consultation feedback, payments to consumers could start in 2026.
• Consumer Challenges: Just 23% of consumers actually trust lenders to handle payouts fairly [4] and many consumers are also having to deal with practical issues, such as not being able to find paperwork. Over 8 million consumers affected have lost important documents and 57% have moved home since taking out their finance agreements.

The FCA also seeks input on how best to streamline the process for consumers who are unsure of their lender, cannot locate paperwork, or prefer independent support to ensure claims are handled correctly.

Considering the Services of a Claims Management Company

Given the scale and complexity of the scheme, some consumers may consider the support of a claims management company. A claims management company such as Reclaim247 can help you check eligibility and manage your claim on your behalf. You may find using a service like this beneficial if you:

• Don’t know who your lender was
• Have changed address since you took out your finance agreement
• Can’t find important paperwork

Claims services such as Reclaim247 will work on a no win, no fee basis and consumers are required to provide as little information as possible. The reason for this is so that any consumer, regardless of having kept all or some of the relevant paperwork to help make a claim, can be offered a possible route to redress.

The FCA has emphasised that the scheme should be simple enough to enable consumers to access redress directly rather than involving a third party. For those seeking guidance on PCP claims or broader car finance mis-selling claims, Reclaim247 provides detailed resources and advice.

Broader Implications for Car Finance Customers

The FCA’s consultation document highlights the need for consumer protection within the motor finance industry. The news story is a stark reminder of the car finance scandal and the number of mis-sold agreements that have impacted on millions of UK motorists. The opportunities for redress and reclaiming through a structured scheme and independent finance claims expert advice.

The FCA has published today's much-anticipated car finance ombudsman report that has set to finally lay to rest concerns such as on what happens if a company ignores the ombudsman after a complaint. The FCA expects to pay compensation to millions of mis-sold car finance customers next year.

Consumers exploring their options may wish to review the latest updates on car finance claims in the UK and consider whether expert guidance could simplify the process.

Conclusion

Consumers who have been mis-sold finance are encouraged to participate in the consultation, know their rights and consider their support options. The FCA’s new approach is likely to lead to fair, orderly and transparent redress to back up the principle that consumers should not miss out on redress for past mis-selling.

_________

References:

1. The Financial Conduct Authority (FCA) has launched a consultation on a proposed motor finance compensation scheme - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme
2. The FCA estimates there are about 14 million motor finance agreements that were mis-sold and could be eligible for compensation - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme
3. Supreme Court ruling confirming widespread mis-selling, reinforcing concerns over lender practices - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
4. 23% of consumers actually trust lenders to handle payouts fairly - https://www.slatergordon.co.uk/newsroom/consumers-trust-the-financial-conduct-authority-to-resolve-the-car-finance/