14m unfair motor loans due compensation under FCA-proposed scheme

The FCA estimates people would receive around £700 per agreement, on average. Based on the number of consumers the FCA estimates could take part in the scheme, lenders could pay out £8.2 billion in compensation.

Motor finance companies broke laws and regulations in force at the time by failing to disclose important information. This led to unfairness, with consumers denied the chance to negotiate or find a better deal and, in some instances, paying more for their loan.  

A compensation scheme is the best, most efficient way of getting compensation to those owed it and would make it simpler for those who would otherwise struggle to claim.  

Research commissioned by the FCA shows almost half of those aware of possible compensation, but who had not yet made a claim, (46%) cite a lack of clarity on whether a claim would be eligible as a barrier, and nearly a quarter (24%) say uncertainty about the level of compensation makes it less likely they would seek compensation. However, 81% of those who were considering making a claim say a compensation scheme would give them the confidence to do so.

Nikhil Rathi, chief executive of the FCA, said:

'Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.  

'We recognise that there will be a wide range of views on the scheme, its scope, timeframe and how compensation is calculated. On such a complex issue, not everyone will get everything they would like. But we want to work together on the best possible scheme and draw a line under this issue quickly. That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year.'

The scheme would be free to access for consumers and cost-effective for firms. Without a scheme, many cases would go through the courts or the Financial Ombudsman Service, resulting in significantly higher legal and administrative costs for firms and consumers, lengthy delays and uncertain outcomes for all involved.    

The FCA is now asking for feedback. It has sought to balance several principles to deliver an easy-to-access and simple-to-deliver scheme, providing fair compensation promptly while ensuring the continued integrity of the motor finance market.  

How the scheme would work

The scheme would cover motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker.  Those who are concerned they weren’t told key details about their motor finance arrangement – for example, about commission payments – should complain to their lender now if they haven’t done so already.  

Four in 10 (41%) of those who've had motor finance agreements and know about possible compensation are unaware they needn’t use a claims management or law firm to make a claim. However, there’s no need as people can submit their own complaint[2] using a template letter (DOCX)[3] on the FCA’s website. Those who choose to use a claims manager or law firm could lose a significant amount of any compensation owed.  

Once the proposed scheme goes live, lenders will contact those who have already complained. If they don’t hear back after 1 month, lenders will assume they should review the case.  

Those who have already complained before the scheme gets up and running are likely to receive compensation faster.  

Those who haven’t complained will be contacted by their lender within 6 months of the scheme starting. People will be asked if they want to opt-in to the scheme to have their case reviewed. They’ll have 6 months to decide.  

Those motor finance borrowers who don’t receive a letter – for example, because lenders no longer have their details and can’t trace them - will have a year from the scheme starting to make a claim. They will be able to do so by making a claim to their lender directly. If consumers don’t know who their lender was, there’s information on how to check on the FCA website. The FCA will run an advertising campaign to raise awareness of the scheme.  

People will only receive compensation under the scheme proposed if they weren’t told details of at least one of 3 arrangements between the lender and the broker who sold the loan, often a car dealer, which are found in some motor finance agreements:

1. A discretionary commission arrangement, which allowed the broker to adjust the interest rate the customer would pay to obtain a higher commission.
2. A high commission arrangement (35% of the total cost of credit and 10% of the loan).
3. A contractual arrangement or tie between the lender and broker, which provided exclusive or near exclusive rights to lenders to provide credit.  

There could be rare circumstances in which a lender may be able to show that even if one or more of these features was undisclosed, that there was no unfairness. Where evidence is missing about what was disclosed, lenders must presume that they didn’t give borrowers enough information.

The FCA will monitor if firms are meeting the proposed scheme's rules and will act if they’re not. If people disagree with their firm's decision, the Financial Ombudsman will be on hand to assess whether the scheme rules have been followed.  

Those with a motor finance complaint about inadequate disclosure of a commission or tie that doesn’t fall within the 3 features above – and who are therefore not owed compensation under the proposed scheme –would only get a different outcome from the Financial Ombudsman if it decides the scheme rules weren’t followed. People in this situation could still make a claim in court if they believed they had lost out.  

Consumers can choose not to take part in the FCA's compensation scheme and instead go to court, where they may get more or less compensation, based on the facts of their case. However, the outcome of a court claim is uncertain and accounting for legal fees they may pay, many consumers could end up with less. The FCA's scheme is also likely to be faster and simpler than going to court.

Notes to editors

• The FCA's statement to the markets[4] on the motor finance compensation scheme.
• The FCA's consultation on the scheme[5], along with supporting evidence and analysis.
• The FCA's statement dated 3 August 2025[6] announcing its intention to consult.  
• The Supreme Court's judgment (PDF)[7] in Hopcraft, Johnson and Wrench, dated 1 August 2025.  
• Letter from Lord Forsyth (PDF)[8] to the FCA regarding motor finance, dated 8 August 2025. And the FCA's response (PDF)[9], dated 3 September.