How the scheme will work   

Motor finance loans taken out between 6 April 2007 to 1 November 2024 are covered.   

There will be a short implementation period so firms can prepare. This will be up to: 

• 30 June 2026 for loans taken out from 1 April 2014 

• 31 August 2026 for those agreed earlier  

Lenders will have 3 months from the end of the implementation period to inform complainants whether they’re owed compensation and how much. This means that people who have already complained or who complain before the end of the relevant implementation period will be compensated sooner.   

Lenders will only contact people who haven’t complained if they are likely to be owed money. They have 6 months from the end of the relevant implementation period to do so. This avoids unnecessary and potentially confusing communication with people who won’t get compensation. Anyone not contacted has until 31 August 2027 to make a claim.   

Claims for high value loans - amounts higher than 99.5% of other loans that year - are not covered by the scheme, which is designed for the mass market. These consumers can still complain to firms and the Financial Ombudsman Service.    

People will only be compensated if they were not told clearly that either:  

1. Their dealer or broker set the interest rate to earn more commission (using a discretionary commission arrangement - DCA). 
2. The commission was high – at least 39% of the total cost of credit and 10% of the loan.  
3. The dealer or broker was using one lender or gave one lender the right of first refusal, (a so-called tied arrangement), except where lenders can evidence that there were visible links with a manufacturer and franchised dealer. For example, where they shared a common or similar name. 

There will be some exceptions, with cases considered fair, if:   

• The commission was £120 or less for agreements beginning before 1 April 2014 and £150 or less from that date. Commission amounts below those levels are unlikely to have influenced the broker’s behaviour or consumer’s decision.     

• The borrower wasn’t charged interest.   

• The DCA wasn’t used to earn discretionary commission. 

• The lender can prove, in certain limited circumstances, it was fair not to disclose one of the arrangements above or that the consumer did not suffer any loss. For example, if no better deal was available. 

Where the commission was very high (50% of the total cost of credit and 22.5% of the loan) and another relevant factor of unfairness existed, consumers will receive the commission paid.  

For most people compensation will be made up of 2 parts, the average of:  

• The commission paid; and 

• The estimated loss, based on a percentage discount of the interest (APR) they paid – 17% for cases from April 2014 and 21% for earlier agreements, to reflect greater loss then.  

Consumers should not be put back in a better position than they would have been had they been treated fairly or than those who suffered the most unfairness, so in around 1 in 3 cases, compensation will be capped. 

Interest will be paid on compensation, based on the annual average Bank of England base rate per year plus 1%, at a minimum of 3% in any year.   

The FCA has established a dedicated supervisory team, led by a Director, to monitor if firms are meeting the scheme's rules and act if they’re not. If people disagree with their firm's decision, the Financial Ombudsman will be able to assess whether the scheme rules have been followed.  

The FCA has also joined with the Solicitors Regulation Authority, Information Commissioner’s Office and Advertising Standards Authority to launch a taskforce to tackle poor handling of motor finance claims by some claims management companies (CMCs) and law firms.  

The taskforce is the latest measure by regulators to improve standards. The FCA has already removed or amended 800 misleading adverts, over 28,000 consumers have been able to exit contracts free of charge, and 3 CMCs reduced their high fees, protecting over 500,000 consumers. 

Consumers can choose not to take part in the FCA's compensation scheme and instead go to court, where they may get more or less compensation, based on the facts of their case. However, the outcome of a court claim is uncertain and accounting for legal fees they may pay, many consumers could end up with less. The FCA's scheme is also likely to be faster and simpler.  

Advice for motor finance customers  

• If you are concerned you were treated unfairly, make a complaint. People who complain before the relevant implementation period ends will be compensated sooner.   

• There is information on how to complain for free on the FCA website. There is no need to use a claims management company or law firm. If you do, you could lose over 30% of any money you get.   

• If you don’t complain and are owed money, your lender should contact you by end of 2026 for post 1 April 2014 agreements and end of February 2027 for agreements that started between 6 April 2007 and 31 March 2014.  

• Watch out for scams. You can check you are dealing with your genuine lender using the contact details listed on the FCA website or through the FCA’s new motor finance scams helpline. You shouldn’t pay a fee to access compensation, or share sensitive details such as your PIN or online banking details.   

Notes to editors  

• Policy statement 

• Graphic of key numbers

• Statement to the market   - includes updated redress liabilities and non redress costs estimates for our consultation proposals following further modelling