Nikhil Rathi, chief executive of the FCA, said: "It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated. We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.
"Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.
"It will take time to establish a scheme, but we hope to start getting people any money they are owed next year."
The FCA estimates that the new redress scheme could cost the motor finance industry up to £18bn. This is because it's likely to include finance deals containing the controversial discretionary commission agreements (DCAs). These agreements are the subject of an ongoing FCA review into the car finance market. They refer to cases where the broker could adjust the interest rate offered to a customer and potentially earn a bigger commission if they offered a higher interest rate. While DCAs were outlawed back in 2021, millions of affected customers complained to the Financial Ombudsman prompting the DCA car finance review, which launched back in 2024.
The FCA also confirmed it will consult on which non-DCA agreements should be included in light of the Supreme Court judgement which upheld a prior decision on the Johnson case ruling that the relationship was unfair, in part due to non-disclosure of a significant commission.
How will the redress scheme work?
If the scheme goes ahead, the FCA will set out rules for firms to assess claims and calculate compensation they may owe to affected customers. There will also be checks in place to ensure firms follow the rules.
It's unclear yet whether the redress scheme will be automatic. The FCA has said it's yet to decide whether it'll create an opt-in scheme or an opt-out scheme. If it chooses an opt-in compensation scheme, you may need to tell your provider by a certain date that you wish to be included. However, if it chooses an opt-out scheme, you will be included automatically unless you specifically opt out.
Regardless of the type of scheme the FCA sets up, firms will likely be required to inform customers well in advance that they may be eligible for compensation and what they need to do to claim their compensation.
When will the redress scheme start?
The FCA plans to publish its redress scheme consultation in October 2025, where it'll set out how the scheme will work. If the FCA decides to go ahead with a redress scheme, it's likely that the first payments will be made in 2026.
Which mis-selling cases will be included in the redress scheme?
The FCA is consulting on including discretionary commission agreements (DCAs) which were not properly disclosed, as part of the redress scheme. However, following the Supreme Court judgement, it'll also consult on which non-DCA deals to include as part of the scheme. It specifically cited the Johnson case, where the non-disclosure of a high commission (amounting to 55% of the total cost of the credit) pointed to an unfair relationship.
As such, the FCA may choose to include cases with particularly high commissions that were not disclosed appropriately, as well as DCA cases, as part of the redress scheme.
It's also currently looking to include agreements dating back to 2007 as part of the redress scheme. This will be consistent with the complaints the FOS can consider and will ensure the scheme is comprehensive.
How much could you receive in compensation?
The exact amount you'll receive in compensation will vary depending on your circumstances, but the FCA estimates that most individuals will receive less than £950 in compensation per agreement. This includes any interest which may be owed.
In the Johnson case, the Supreme Court said that the payment of the commission was an appropriate remedy. The FCA said it's unlikely it will consider alternatives that will lead to higher remedies than the full repayment of the initial commission plus interest of around 3% per year. As such, it's likely that the maximum compensation available will be whatever the commission earned by the broker was plus interest.
What should you do next if you believe you might be due compensation?
If you have already made a complaint, you don't need to do anything. Under the FCA's temporary rules, firms have until the 4th of December 2025 to give customers a final response to relevant motor finance complaints. The FCA will consult on whether this deadline needs to be extended again to prevent inconsistent outcomes for customers.
If you have not complained already and you believe you were not told about a commission or paid too much for your finance deal, you should complain now. Remember, the FCA is looking at opening up the redress scheme to non-DCA deals as well as DCA deals, so your finance arrangement does not necessarily need to contain a DCA to qualify. You can complain directly to the lender or broker who arranged your deal. In your complaint, you should include details like:
- Your name
- Your policy number
- The date of the agreement
- Your address when you took out the agreement
While you should receive acknowledgement of the complaint within 8 weeks, you likely won't receive a final response until at least the 4th of December 2025 and possibly later. If this final response is unsatisfactory, you can then complain to the Financial Ombudsman. You can find out more about the car finance complaints process on the FOS website.
Should you use a claims company?
It's probably best not to use a claims company to complain about your car finance deal. This is because claims companies can take a large chunk of your compensation (around 30%).
Also, the FCA is working to create a redress scheme that is easy to participate in for most consumers, without the need to consult with claims companies or lawyers. It may even choose an automatic model where companies will need to contact affected customers and offer compensation without them having to do anything.
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