As the UK financial watchdog readies to publish the motor finance redress scheme, AM charts how a regulatory concern over commission disclosure evolved into one of the most significant financial and operational risks facing car dealers and lenders.
The story begins with the Financial Conduct Authority’s (FCA) long-standing concerns over discretionary commission arrangements, where dealers and brokers could determine customer interest rates. The regulator banned these models from January 2021, but the foundations of today’s redress debate were already being laid.
At the time, the move was positioned as a forward-looking intervention to improve transparency and fairness in motor finance. However, it also created a clear dividing line between historic practices and new regulatory expectations, setting the stage for future scrutiny of agreements written before the ban came into force.
FCA review sets redress path
In January 2024, the FCA escalated the issue by launching a formal review into historic motor finance commission arrangements and pausing complaint handling timelines. The move signalled that the regulator was considering systemic failings rather than isolated cases.
This intervention was significant not just for its scope, but for its tone. By pausing the standard eight-week complaint response requirement, the FCA effectively acknowledged that firms would need time to reassess historic agreements at scale.
Critically, the FCA made clear at this stage that an industry-wide compensation scheme was a possible outcome if widespread consumer harm was identified. For dealers, this marked the moment the issue shifted from legacy compliance into future financial exposure.
In October 2024, AM’s reporting framed this phase as the beginning of a longer process rather than a one-off regulatory action, with early indications that the review could extend well beyond discretionary commission arrangements depending on the evidence uncovered.
Court ruling reshapes exposure
The situation intensified following the Court of Appeal judgment in October 2024 in the linked cases of Johnson v FirstRand, Wrench v FirstRand and Hopcraft v Close Brothers.
In broad terms, it found for the consumers in the linked appeals and created the possibility of far wider liability where commission had not been properly disclosed and consented to. That judgment dramatically raised the stakes because it appeared to move beyond the narrower DCA issue that had originally prompted the FCA review.
The Court of Appeal ruling shocked the market and triggered lending suspensions, forcing the industry into a scramble over disclosure standards: no longer was this just an FCA review of historic DCA cases, but a broader legal challenge to how commission had been disclosed and understood in motor finance generally.
The judgment shifted the narrative from regulatory review to legal exposure. What had been an FCA-led investigation now became a actionable risk, with the potential for large-scale claims driven by precedent rather than policy.
The FCA’s response showed just how seriously it took the implications. It initially said it was carefully considering the Court of Appeal decision, then in December 2024 extended the complaint-handling pause to cover non-DCA commission complaints as well as DCA cases. In other words, the regulator accepted that the Court of Appeal had widened the potential scope of harm well beyond the original review.
Supreme Court narrows scope
From there, the focus moved to the Supreme Court. Permission to appeal was granted to the lenders involved in December 2024, and the FCA announced the following March that it had been allowed to intervene and would set out next steps after the appeal hearing, which took place between 1-3 April 2025. That was a strong signal that, whatever the legal outcome, the regulator was already preparing for the mechanics of redress
The Supreme Court ultimate judgment, delivered on 1 August 2025 marked another key turning point in the evolution of the redress story.
That ruling proved more nuanced than the Court of Appeal, but it did not kill the prospect of compensation. The court largely overturned the wider common-law reasoning that had alarmed lenders and much of the industry, including rejecting the idea that motor dealers generally owed fiduciary duties to customers when acting as credit brokers.
But it still found that the relationship in Mr Johnson’s case was unfair under section 140A of the Consumer Credit Act because of the size and non-disclosure of the commission and the undisclosed contractual tie.
For the FCA, the judgment provided clarity rather than closure. It confirmed that there was a viable route to consumer redress, while also setting boundaries around how far liability could extend.
Attention moved away from worst-case legal scenarios and towards practical questions about how compensation might be calculated, administered and funded.
FCA shifts to compensation model
By mid-2025, the FCA was openly consulting on how a redress scheme could operate, including questions around scope, eligibility and whether compensation should be delivered through a centralised process or left to firms to manage individually.
The regulator’s preferred direction became clear in October when it launched a formal consultation on an industry-wide scheme covering agreements written between 2007 and 2024, marking a decisive transition from investigation to implementation planning.
The FCA argued that a coordinated approach would be more efficient and would deliver better outcomes for consumers than a fragmented complaints process.
AM’s reporting during this phase focused on the financial implications, with the most exposed lenders including Close Brothers and Lloyds Banking Group increasing provisions significantly in anticipation of payouts. These provisions signalled that firms were preparing for substantial liabilities, even before the final shape of the scheme had been confirmed.
The scale of the potential redress exercise also became clearer, with millions of agreements potentially in scope and the total cost to the industry expected to run into the billions.
The FCA estimated around 85% of 14m eligible consumers would take part in the scheme, which would mean compensation payouts of £8.2bn. At that level of take-up, the estimated costs to firms of implementing the scheme would be £2.8bn, taking the total cost to £11bn.
Dealer impact and next steps
By early 2026, the focus had shifted from legal uncertainty to implementation. The FCA confirmed that any scheme would include an operational rollout period and would aim to streamline payments to millions of consumers.
Record keeping, documentation of historic finance agreements and clarity around disclosure processes became a key area of focus to both lenders and dealership as they would play a role in how claims are assessed.
On 24 March 2026, the regulator said it would publish its final approach at the end of the month, bringing the industry to the brink of a definitive compensation framework. ‘We will set out our approach on motor finance redress shortly after markets close on Monday 30 March, having consulted on a compensation scheme in October 2025,’ the statement said.
As the sector approaches the final phase of the motor finance redress scheme, dealers and lenders alike are entering a period where clarity will replace uncertainty, but where the practical realities of delivering compensation at scale will depend critically on transparency, documentation and clear customer communication as essential safeguards.
Motor finance redress timeline
28 July 2020: FCA confirms discretionary commission ban, effective January 2021
January 2021: Ban on discretionary commission arrangements comes into force
11 January 2024: FCA launches review and pauses complaint handling timelines
24 September 2024: FCA extends complaint handling pause as review continues
25 October 2024: Court of Appeal ruling expands potential liability
29 October 2024: AM Online reports industry response and disclosure focus
December 2024: Supreme Court grants permission to appeal and FCA extends complaint pause
April 2025: Supreme Court hears linked appeals
1 August 2025: Supreme Court judgment confirms unfair relationship pathway
7 October 2025: FCA launches consultation on industry-wide compensation scheme
14 October 2025: AM reports increased provisions from major lenders
November 2025: FCA confirms consultation progress and preferred approach
March 2026: FCA confirms scheme structure and implementation planning
30 March 2026: FCA expected to publish final redress scheme approach
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