The Financial Conduct Authority (FCA) has confirmed it will introduce an industry-wide compensation scheme for millions of motor finance customers who were treated unfairly.

The decision follows evidence that many firms failed to comply with legal and regulatory requirements, particularly by not properly disclosing commission arrangements when selling car finance.

The FCA concluded that a redress scheme is the most effective way to deliver compensation consistently and efficiently, rather than relying on individual complaints. The scheme will require lenders to assess whether customers lost out and, if so, provide appropriate compensation under a standardised set of rules.

The scheme applies to motor finance agreements made between 2007 and 2024. It is designed to balance fair outcomes for consumers with the need to maintain a stable and functioning market. The FCA acknowledges that, due to the complexity of the issue, not all consumers will receive everything they might expect, as the approach involves simplifying some legal and operational challenges.

Firms will be responsible for identifying affected customers and handling payments, with the FCA overseeing compliance. Compensation is expected to begin before the end of 2026. Overall, the scheme aims to provide a clear, orderly, and accessible route for consumers to receive redress where they have suffered harm.

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Joe Norburn, CEO of TCC, Momenta and Recordsure, comments:

“Now firms know where they stand, and with the new implementation periods in place, the focus should be on identifying affected customers, validating historical data, strengthening governance frameworks, and deploying technology to automate calculations and communications. A structured, data-driven approach will be critical to managing the compensation scheme at this scale to deliver fair outcomes for customers and demonstrate compliance in what will be a highly scrutinised process.”

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