The journey began with the Consumer Credit Act 2006, which introduced the unfair relationship provisions and expanded consumers' access to the Financial Ombudsman Service (FOS). These reforms provided consumers with stronger protections where lending relationships could be shown to be unfair and established mechanisms for redress outside the courts.
Further regulatory focus followed in 2010 when the Office of Fair Trading published its irresponsible lending guidance, setting out expectations for consumer credit firms. In April 2014, responsibility for consumer credit regulation transferred to the FCA, bringing the sector within the FCA's wider conduct and consumer protection framework.
A major turning point came in 2017 when the FCA launched a review of the motor finance market. The review identified concerns regarding Discretionary Commission Arrangements (DCAs), under which brokers and dealers were able to influence the interest rate offered to customers and increase their commission earnings accordingly. The FCA concluded that these arrangements created a conflict of interest that could result in customers paying higher borrowing costs than necessary.
Following consultation, the FCA confirmed a ban on DCAs in July 2020, with the prohibition taking effect in January 2021. The ban marked a significant intervention aimed at improving transparency and ensuring customers received fairer outcomes when purchasing vehicles through finance arrangements.
However, the issue did not end there. In January 2024, the Financial Ombudsman Service issued its first decisions in favour of consumers relating to historic DCA complaints. These decisions prompted the FCA to launch a wider review into historic motor finance commission arrangements and to temporarily pause complaint handling requirements while it assessed the potential scale and implications of customer detriment.
At the same time, a number of important legal developments emerged. The judicial review brought by Clydesdale Bank and the landmark Johnson litigation raised broader questions regarding commission disclosure, lender liability and the circumstances in which consumers may have been treated unfairly. The FCA subsequently extended complaint-handling pauses while awaiting clarity from the courts and considering the implications for firms and consumers.
The Supreme Court hearing in Johnson took place in April 2025, with judgment handed down in August 2025. Prior to the judgment, the FCA had already signalled that an industry-wide approach to redress might represent the most effective and consistent means of addressing historic issues across the market. Following the judgment, the FCA consulted on an industry-wide redress scheme and subsequently confirmed the final framework in March 2026.
The Motor Finance Consumer Redress Scheme
The FCA's Motor Finance Consumer Redress Scheme is designed to compensate consumers who may have suffered detriment as a result of historic motor finance commission arrangements between 2007 and 2024. The regulator concluded that inadequate disclosure of certain commission arrangements resulted in unfair outcomes for some customers.
The scheme aims to provide a consistent and efficient route to compensation, with firms required to review historic agreements, assess eligibility and, where appropriate, calculate and pay redress. It covers two periods: agreements entered into between 6 April 2007 and 31 March 2014, and those entered into between 1 April 2014 and 1 November 2024.
The review focuses on Discretionary Commission Arrangements (DCAs), certain high-commission arrangements and other contractual relationships that may not have been adequately disclosed to consumers. The FCA estimates that around 12.1 million motor finance agreements fall within the scope of the scheme, with average compensation expected to be approximately £830 per agreement, including interest. The majority of claims were expected to be resolved by the end of 2027.
Beyond providing compensation, the FCA has stated that the scheme is intended to deliver fair, consistent and timely consumer outcomes at scale, reduce reliance on complaints and litigation, provide greater certainty and finality for firms, and support the long-term functioning of the motor finance market.
Legal challenge and ongoing developments
Whilst the FCA has finalised the redress framework, implementation has not been entirely straightforward. Elements of the scheme have been subject to legal challenge, resulting in parts of the scheme being temporarily suspended while specific legal issues are considered by the courts.
At a high level, these challenges focus on aspects of the FCA's proposed approach to compensation and the scope of certain redress provisions. The FCA has made clear that it remains committed to delivering compensation to affected consumers and continues to defend the scheme while seeking to minimise disruption and provide certainty to firms and consumers.
Although the legal proceedings may affect the timing and implementation of certain aspects of the programme, they do not alter the FCA's broader view that historic deficiencies in commission disclosure and transparency resulted in unfair outcomes for some motor finance customers. The outcome of these challenges is therefore likely to influence how redress is ultimately delivered, rather than whether historic issues should be addressed.
What’s next
The Motor Finance Consumer Redress Scheme marks the culmination of almost two decades of evolving regulation and consumer protection in the UK motor finance market. From the introduction of the Consumer Credit Act 2006 and the FCA's ban on discretionary commission arrangements to the recent legal and regulatory developments, the direction of travel has been clear: greater transparency, stronger consumer protections and increased accountability for firms.
The scheme aims to provide consumers with a straightforward route to compensation for historic unfairness, while enabling firms to address legacy issues in a consistent and efficient manner. Although aspects of the scheme remain subject to legal challenge, the motor finance review is likely to be remembered as one of the most significant conduct and remediation programmes in UK financial services, with lasting implications for commission disclosure, consumer redress and regulatory expectations.
*the views expressed are the author's and not ICAEW's