Key considerations in implementing a possible motor finance consumer redress scheme

In a recent update published 5 June 2025, the FCA is looking ahead of the Supreme Court decision and are setting out the points for consideration if a redress scheme was introduced as part of the review into motor finance commission arrangements.

Why is this important?

More than 2 million used and new vehicles are bought using motor finance each year. Before January 2021, some motor finance lenders allowed specialised finance brokers and car dealers to adjust the interest rates on finance deals offered to their customers. The higher the interest rate, the more commission the broker received. This was known as a discretionary commission arrangement (DCA), and this practice was banned in the motor finance market in 2021.

Following this, there were a high number of complaints from customers about firms failing to disclose details about commission arrangements before the ban was implemented. Firms were rejecting most of these complaints, because they believed they had not acted unfairly and haven’t caused customers to lose out.

In 2024, the Financial Ombudsman Service considered some complaints rejected by firms and found in favour of complainants in two key decisions involving DCAs and these decisions were expected to see an increase in previously rejected complaints.

In January 2024, the FCA stepped in to investigate the use of DCAs in the motor finance market before they were banned in 2021. The deadline for motor finance firms to provide a final response to relevant customer complaints was extended to prevent disorderly, inconsistent and inefficient outcomes for consumers, and knock-on effects on firms and the market while issues were being investigated.

On 25 October 2024, in the three joined cases of Johnson and others, the Court of Appeal decided it was unlawful for the car dealers to receive a commission (whether discretionary or a fixed percentage) from lenders providing motor finance without:

1. giving the customer sufficient information about the commission, and
2. getting their informed consent to the payment.

The 2 lenders in the cases were granted permission to appeal by the UK Supreme Court. As a result, the FCA expanded the review and extended the time firms have to respond to any relevant motor finance commission complaints to December 2025, following this decision by the Court of Appeal in October 2024.

In April 2025, the Supreme Court heard an appeal in relation to the Court of Appeal decision and submissions were made by the FCA to assist the Supreme Court. The Court has indicated that they aim to deliver their judgment in July 2025. We are a month away from this.

During this period, many firms were looking to set up Claims Management Companies (CMCs) to ‘cash in’ on the expected increase in complaints and DCA claims made against firms and money to be made by those firms. It was seen as another ‘cash cow’ to be milked. There was an influx of firms seeking authorisation and the delay in any ruling worked in the CMCs favour as they were working through the FCA authorisation process. Would the creation of a new industry and army of CMCs be beneficial to customers? Perhaps. Or is there another option that could be taken?

In March 2025, the FCA stated that it would consult on an industry-wide consumer redress scheme: this was on the basis that following the outcome of the Supreme Court judgment, it was concluded that motor finance consumers have lost out. Under a redress scheme, the FCA would set rules for how firms assess claims and calculate redress, and checks would be put in place to ensure they are following the rules.

The FCA would aim to make any scheme easy for consumers to understand and participate in, without the need to use a CMC or law firm where up to 30% of any award could be paid away in fees. That would potentially ‘kill’ the business model of such firms. If the FCA do decide to propose a redress scheme, it will publish a consultation setting out why:

1. it is the right thing to do, and
2. how it could work.

It is not possible to predict the outcome of the Supreme Court’s judgment, but the FCA is engaging with stakeholders now as part of the consultation and starting to bring greater certainty for affected consumers, firms and investors. To help with this, the FCA has drafted a “Principles of a motor finance consumer redress scheme” document. This can be found at the following link.

What are the next steps?

The FCA will confirm within six weeks of the Supreme Court judgment due in July 2025 whether it will look to introduce a redress scheme. If so, the FCA will set out timings for when a consultation will be issued. 

The consultation would set out detailed proposals for how a redress scheme would work in practice alongside draft rules, including the proposed timings for when a redress scheme would be implemented.

Following the consultation, the FCA will confirm whether it will go ahead with a redress scheme, and if so, what the final rules are. The final rules would set out when firms need to implement the scheme, which, subject to consultation, will be in 2026. 

If you would like to discuss this further, please get in contact with us, and our expert team will guide you in the right direction. 

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