Regulator plans to implement industry-wide payouts for motor finance customers
The Financial Conduct Authority (FCA) is preparing to consult on a compensation scheme for motor finance customers, following a series of legal rulings and regulatory investigations into undisclosed commission arrangements between lenders and car dealers.
Concerns over industry practices intensified after an October 2024 Court of Appeal decision found that undisclosed car finance commissions were unlawful, raising fears that compensation claims could approach the scale of the £30 billion payment protection insurance (PPI) scandal. In the wake of the ruling, major lenders — including Close Brothers, MotoNovo, Lloyds, Santander, and Barclays — temporarily suspended new deals as the FCA began its investigations.
The regulator said it is moving quickly to provide clarity for consumers, businesses, and investors after identifying widespread non-compliance with rules requiring transparency about commissions paid to dealers selling car loans. The FCA aims to ensure the motor finance market operates fairly for consumers and maintains market integrity.
“It is clear that some firms have broken the law and our rules,” said Nikhil Rathi, chief executive of the Financial Conduct Authority. “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.”
Nikhil Rathi, CEO of the FCA, says motorists affected by the car finance scandal must "get the fair treatment that they're owed".
— Sky News (@SkyNews) August 3, 2025
The FCA will work "intensively" to ensure customers get compensation "as quickly as possible", he adds.
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The FCA’s announcement comes after last week’s Supreme Court decision in cases where the regulator intervened. While the court found that many commission payments were legal, it ruled that failing to properly disclose certain commission arrangements could be considered unfair and unlawful in some situations.
The FCA plans to introduce rules to ensure lenders assess compensation claims consistently and fairly. The regulator said it will monitor compliance and take action against firms that do not follow the rules.
According to FCA estimates, most individuals are likely to receive less than £950 in compensation. The total cost of the scheme will depend on its final design, with current estimates suggesting a minimum of £9 billion and a possible upper range of £18 billion, though the FCA considers a mid-range figure more likely.
The consultation is expected to begin by early October. If implemented, the first compensation payments would be made in 2026.
Consumers who have already submitted complaints do not need to take further action. The FCA encourages anyone who believes they were not informed about commission payments and may have overpaid for motor finance to lodge a complaint directly with their lender, rather than using a claims management company or law firm, which could take around 30% of any compensation.
Meanwhile, industry group Finance & Leasing Association have raised concerns about the scope of the proposed scheme.
“We have concerns about whether it is possible to have a fair redress scheme that goes back to 2007 when firms have not been required to hold such dated information, and the evidence base will be patchy at best,” said Stephen Haddrill, FLA director general. “We will be interested to see how the FCA addresses this point in its consultation.”
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