FCA Motor Finance Compensation: Comment and Analysis -

Some comments on yesterday’s FCA announcement;

OSBORNE CLARKE

Rachel Couter, Head of UK Contentious Financial Services, Osborne Clarke:

“The final scheme is likely to be met with real disappointment by the industry, as it appears to push well beyond what the Supreme Court decided. It sharply increases the risk of legal challenge, with many expected to argue that the FCA has overreached. Although the overall compensation bill has dropped from earlier proposals, the redress timetable looks tight for many lenders.”

WOMBLE BOND DICKINSON

Emma Radmore, Legal Director in the financial institutions team at Womble Bond Dickinson said:

“Lenders are likely to welcome the greater clarity and narrowing of scope compared with the consultation. The FCA has clearly sought to strike a balance between delivering redress and keeping the scheme proportionate, and the market will now focus on implementation.

“The FCA has narrowed the scope, changed some thresholds and introduced a staged structure to the scheme. It has also removed some of the more inflexible and time-and cost-consuming administrative requirements.

“So, all in all, it has produced figures that indicate that lenders will pay out less in redress and incur fewer costs in implementing the scheme. A tighter scope and a phased structure brings greater certainty, even as the industry considers whether any aspects are challenged.”

KPMG

Commenting on the FCA’s announcement on the motor finance redress scheme, Peter Rothwell, Head of Banking, KPMG UK says:

“Today’s announcement gives lenders and the market greater clarity on how the motor finance redress scheme will be put into action. While the final rules reflect some changes to eligibility and redress – with estimated payouts decreasing from £8.2bn to £7.5bn – the FCA has stood firm on the main criteria and this remains a substantial exercise. With an initial start date of June 30 2026, lenders must now unpick the detail and move quickly from planning to execution.

“The FCA has made the decision to implement two schemes, one covering April 2007 – March 2014 and another April 2014 – November 2024. This could help to speed up the process for some consumers, but also risks causing confusion for others.

“As the industry works through this detail, attention will turn to whether any elements of the scheme face further scrutiny or challenge.”

SICSIC

Commenting on the FCA’s Motor Finance Redress Scheme announcement, Philip Salter, Senior Adviser, Sicsic Advisory, said:

In their Motor Finance Consumer Redress Scheme, the FCA made every effort to simplify the situation. But the scheme remains necessarily complex in order to seek to combine the redress due from discretionary commission arrangements and the issues stemming from the Supreme Court around excessively high commission and non visible links between lenders and brokers. Splitting the initiative into two separate schemes by time period is a sensible and pragmatic step. It may signal a legal challenge is expected and should enable the scheme to commence without delay. The FCA seeks closure and a resolution to ensure clients receive compensation promptly, potentially within 2026.

Overall, the latest changes look sensible and the progression of the scheme will be welcomed. There is some narrowing of the eligibility, and there are some obvious winners: in particular, the car manufacturers selling finance through their own car dealership networks and perhaps some of the banks that provided finance at the lower end of the cost range.

Conversely, the Financial Ombudsman Service (FOS) may still face a significant volume of cases. This scale of work may present an operational challenge for the organisation.

FREETHS

Sushil Kuner, Head of Financial Services Regulation at national law firm Freeths, said:

“The FCA’s final motor finance redress scheme shows that it has meaningfully engaged with consultation feedback and recalibrated its approach where the evidence justified it. By tightening eligibility, raising certain commission thresholds and refining how loss is assessed, the FCA has moved towards a more proportionate and legally grounded framework.

“Crucially, the final rules better reflect the Supreme Court’s fact‑specific approach in Johnson, addressing lender concerns that the consultation proposals risked going further than established legal principles on unfair relationships. That should help reduce legal friction and give firms greater confidence in delivering redress at scale.

“One of the most important clarifications in the FCA’s final scheme is its treatment of captive and white‑label motor finance. The rules now make clear that a visible or contractual link between a lender, manufacturer or dealer does not, by itself, give rise to redress.

That is a significant shift from the consultation framing, and one that will be welcomed across the captive finance and OEM‑linked sector. The FCA has moved the focus back to where the law places it, on whether the commission structure and disclosure actually resulted in unfairness and consumer loss, assessed on the facts. For integrated finance models, this provides much‑needed certainty that scale, structure or branding alone are not being treated as proxies for misconduct.

“This remains a complex and resource‑intensive operational programme, but the FCA’s adjustments should materially reduce the risk of satellite litigation and allow firms to focus on execution, identifying affected customers, evidencing decisions, and delivering redress efficiently.

“The final scheme also reflects a clear emphasis on deliverability and market stability. By narrowing scope, excluding low‑risk agreements and streamlining the process, the FCA has reduced the overall operational and financial burden on firms while still aiming to provide timely redress to consumers who were genuinely treated unfairly.

“That said, firms should not underestimate the challenge. Complaints handling, evidence around unfairness and loss, and alignment between scheme outcomes and wider dispute resolution will remain critical focus areas over the next 18 months.”

KROLL

Paul Jennings, Managing Director, Regulatory Consulting, Kroll:

“It looks like extra time is finally over for banks, financial institutions, car makers and captive lenders regarding the motor finance mis-selling review. This is set to be the UK’s largest consumer redress scheme since PPI, with £9 billion covering more than 12 million motor finance agreements estimated to be in scope. It is clear from what has been published that strong lessons have been learnt from PPI. Firstly, this process will not drag on but crucially, companies need to deliver and the regulator will be watching closely.

“The immediate test now for firms is operational – identifying customers, accessing historic data, compliance with the Consumer Duty and delivering compensation payments at scale. The FCA has strongly indicated that the onus is on the firms. Boards should treat this as a major incident response, as they would a significant cyber-attack or class action settlement administration, where execution, governance, compliance and fraud will all be critical to meet FCA requirements. The risk of failure to comply with the redress scheme will continue to keep many people awake at night, especially small and mid-sized firms.”