Last week, the Financial Conduct Authority (FCA) launched its consultation on CP25/27, proposing an industry wide compensation (redress) scheme for consumers who were treated unfairly in motor finance deals. The idea is to create a structured, consistent way for customers to receive compensation, rather than leaving everything to individual complaints or court cases. The consultation runs until November 2025, and the FCA expects to publish the final rules in early 2026. Payments would begin later that year.
In brief, the FCA is suggesting that consumers will only receive compensation under the proposed scheme if they were not told details of at least three arrangements between the lender and the broker who sold the loan, which are found in some motor finance agreements:
- A discretionary commission arrangement, which allowed the broker to adjust the interest rate the customer would pay to obtain a higher commission.
- A high commission arrangement (35% of the total cost of credit and 10% of the loan).
- A contractual arrangement or tie between the lender and broker, which provided exclusive or near-exclusive rights to lenders to provide credit.
The redress scheme would cover:
- Historic motor finance agreements where commission or broker arrangements might not have been properly disclosed, or where the lender-consumer relationship might have been unfair.
- A key focus on discretionary commission arrangements (DCAs), which are deals where the broker (or dealer) could adjust the interest rate or commission depending on the customer.
- Non-discretionary broker commission models could also be included if there is evidence of an “unfair relationship.”
- A potential opt-out structure (that is, affected consumers are automatically included unless they decline) to make it easier for customers.
- Costs to the industry that the FCA estimates at between £9 billion and £18 billion. Compensation per agreement will generally be limited, and the FCA has estimated that the average payout would be around £700.
Interestingly, Lawgistics received a Dear CEO letter which we expect most of our members would have received. We are not an FCA regulated firm and therefore not involved in motor finance lending and broking from 2007. However, the important message from this letter for our members is:
In essence, Principle 11 requires lenders and brokers to engage with the FCA in an open and cooperative way and to notify the regulator promptly of anything that could materially affect their ability to meet their obligations.
If you are unsure of what the implications are or need any advice, please contact Lawgistics and we will provide a further update once the FCA publishes their final rules in 2026. If you have had the same issue or a similar problem, why not call our legal team at Lawgistics. Our helpline and casework service can assist with Principle 11 communications and any related documentation.
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