FCA moves to streamline motor finance redress scheme

Millions of motorists who may have been treated unfairly in motor finance deals could begin receiving compensation in 2026 under a streamlined redress scheme being developed by the UK’s Financial Conduct Authority (FCA).

In an update issued today, the regulator said it is reviewing more than 1,000 responses to its consultation on a proposed industry-wide compensation scheme for customers who were not properly informed about commission arrangements in their motor finance agreements.

While final decisions have not yet been made, the FCA indicated it is likely to introduce a new implementation period and simplify the claims process in order to ensure consumers receive any money owed more quickly.

Implementation period planned

If the scheme proceeds, the FCA expects to publish final rules in late March, with the announcement scheduled to take place outside market hours. The regulator will confirm the exact publication date in advance.

Because of the scale and complexity of the redress programme, the FCA said it is likely to introduce an implementation period of three months for most agreements.

For older motor finance agreements, firms may be given up to five months to prepare.

However, firms would be allowed to start processing claims earlier if they are ready, potentially accelerating compensation payments.

Faster and simpler process

The regulator also outlined several proposed changes aimed at making the scheme easier for both consumers and lenders.

Under the revised approach:

• Consumers who have already complained before the scheme begins would no longer be asked to opt out of the scheme.
• Instead, within three months of the end of the implementation period, their lender would contact them to confirm whether compensation is owed and how much.
• Customers receiving a redress offer would be able to accept it immediately, rather than waiting for a final determination.
• Firms would not have to send letters by recorded delivery, with a wider range of communication channels permitted as long as safeguards are in place to prevent fraud.

Despite the implementation period, the FCA said that streamlining the process should mean millions of people receive compensation during 2026.

FCA urges consumers to complain now

The regulator is continuing to encourage motorists who believe they were not told about commission arrangements in their car finance deal to submit a complaint now.

Doing so could mean they receive compensation sooner once the scheme launches, the FCA said.

It also warned consumers that claims management companies (CMCs) or law firms are not necessary, and that those using them may lose more than 30% of any compensation in fees.

Action against misleading claims firms

The FCA said it has already taken steps to tackle poor practices in the claims management sector.

Since January 2024, the regulator has removed or amended more than 800 misleading adverts, and intervened with five CMCs causing harm.

As part of those interventions, two firms reduced exit fees, while four agreed to stop taking on new clients until they demonstrate compliance with FCA rules.

Broad support for changes

According to the FCA, many consumer groups and firms that responded to its consultation supported the likely changes to the scheme.

The regulator said the updated approach would improve the experience for consumers while helping ensure the cost of delivering the scheme remains proportionate, supporting a stable motor finance market relied upon by millions of UK borrowers.

Further details are expected when the FCA confirms its final decision and rules later this month.