In the UK’s motor finance sector, consumer confidence has faced significant challenges. The Financial Conduct Authority (“FCA”) has introduced Consultation Paper CP25/27 consultation which proposed an industry-wide redress scheme aimed at ensuring that motorists who were treated unfairly by lenders or brokers receive appropriate compensation.
For motor finance firms, this marks more than just a regulatory shift, it is a pivotal moment. Firms must adapt to rebuild consumer trust or risk substantial legal and financial consequences.
Background and Root Causes of the Redress Scheme
Widespread Disclosure Failures
The FCA has identified systemic failings in the way firms disclosed commission arrangements and broker-lender relationships when selling motor finance products, particularly Discretionary Commission Arrangements (“DCAs”). These failures potentially breach Principles 6 (Customers’ interests) and 7 (Communications with clients) of the FCA’s Principles for Businesses (PRIN).
Consumer Harm
Millions of UK consumers may have suffered financial detriment due to inadequately disclosed commission models. The resulting consumer harm has necessitated a standardised and efficient redress approach.
Inconsistency and Scale
Handling complaints on an individual basis through litigation is inefficient and risks inconsistent outcomes. A structured redress scheme offers a more equitable, streamlined and scalable solution.
Timeliness
The FCA aims to implement the redress scheme by the end of 2026, with compensation expected to follow shortly thereafter.
What the FCA Proposes
- Redress Scheme for Eligible Consumers
An industry-wide redress mechanism to compensate consumers who were adversely affected by undisclosed or unfair commission arrangements in motor finance agreements.
- Extension of Complaint Handling Deadline
The FCA proposes to extend the deadline for firms to issue final responses to relevant motor finance complaints until 31 July 2026, under DISP 1.6.2R of the FCA Handbook.
- Eligibility
The scheme will cover agreements with:
- Current customers
- Deceased customers (via their estates)
- Previously addressed complaints where redress was not accepted
- Calculation of Redress and Interest
The FCA has outlined a calculation framework for redress, including interest. However, firms may rebut these presumptions with customer-specific evidence. This is in line with DISP 1.4.1R regarding fair and appropriate redress.
- Communications and Consumer Protection
The FCA will mandate prescribed wording in communications, ensure fraud protection mechanisms, and launch a public awareness campaign to inform affected consumers.
- Implementation Timing
A policy statement and final rules are expected in early 2026, with redress disbursements commencing later that year.
What Should Firms Do Now?
Although the consultation remains open until November 2025, firms should take proactive steps immediately:
- Portfolio Review: Assess historical motor finance agreements, disclosure procedures and complaint trends.
- Evidence Gathering: Begin compiling strong customer-level evidence to support rebuttals to FCA presumptions.
- Consumer Communications: Develop fair, fraud-resistant and FCA-compliant customer communications.
- Independent Reviews: Audit historic commission structures, disclosure records and tied broker arrangements.
- Financial Planning: Use stress-testing and scenario modelling to assess the capital and liquidity implications of redress obligations.
Proactive action now can reduce operational strain, enhance regulatory engagement and mitigate reputational damage.
Industry Implications
Firms that proactively adopt fair redress practices will enhance their reputation as trustworthy and consumer-focused, gaining a competitive edge in a closely scrutinised market. By engaging constructively with the FCA’s consultation, firms can build regulatory goodwill and potentially shape the final framework. Ultimately, a well-implemented redress scheme offers a vital opportunity to restore consumer trust in the motor finance sector.
How can Complyport Help?
At Complyport, we help firms bridge the gap between regulatory expectations and operational readiness, ensuring your response to the FCA’s proposed Motor Finance Consumer Redress Scheme (CP23/27) is proactive, structured and defensible.
Our support includes:
- Regulatory Impact Assessments: Analysing how regulatory changes applies to your firm’s products, historic practices and existing complaint portfolios to quantify exposure and identify key focus areas.
- Governance and Oversight Frameworks: Establishing clear accountability for redress planning and execution, aligned with FCA principles of fairness, transparency and consumer protection.
- Remediation and Redress Execution: Building complete redress workflows, including triage models, validation processes and assurance controls to deliver accurate and timely compensation.
- Evidence and Data Readiness: Supporting data discovery, record retrieval and documentation to help firms respond effectively to presumptions and substantiate rebuttals within the scheme’s framework.
- Consumer Communications: Designing compliant, FCA-aligned customer communications that are clear consistent, and safeguarded against impersonation or fraud.
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