The FCA’s Redress Scheme: What Lenders and Dealers Need to Know Now

The FCA’s upcoming redress scheme could reshape the motor finance landscape—impacting firms, brokers and customers alike. Here’s what we know so far.

What we know about the FCA’s redress scheme

In the immediate fallout from the Supreme Court’s judgment in August 2025, the FCA said it would launch a consultation to compensate motor finance customers who were treated unfairly. That consultation is expected to be published in early October 2025 and will remain open for six weeks. In the meantime, the pause for firms to respond to motor finance complaints remains in place until 4 December 2025.

The FCA has provided hints on what it expects the redress scheme to look like:

• it is estimated that 30 million finance agreements will need to be reviewed, but compensation will only be owed to customers in less than half of these cases;
• most customers will receive less than £950. However, given the scale of claims, the FCA expects the scheme to cost between £9-18 billion when all is said and done; and
• the bulk of payouts will be made in 2026, with this process likely to start from January onwards

Challenges for lenders and retailers

The FCA’s announcement that it would allow claims dating back to 2007 has been met by widespread dismay amongst lenders and retailers. Many, quite reasonably, say they do not have records going back this far. In response, the FCA has suggested that it will take an uncompromising approach and Nikhil Rathi, its Chief Executive, has said: “Where a firm says to us that they don’t have the data, we’re not just going to take that at face value. We will look at that very forensically”. The FCA has also suggested that it may require lenders and retailers to work with third parties, such as credit agencies, to try to track down customer data.

The FCA’s anticipated cost of the scheme has also been met with alarm, being much higher than some expected given the limited scope of the Claimants’ success at the Supreme Court. The Guardian has reported that the Financing and Leasing Association, a major trade body for the motor finance sectors, may seek to challenge a redress scheme if it results in “disproportionate” payouts to customers.

Key questions for the FCA consultation

Other specifics about the redress scheme are not currently known but are likely to include:

• what type of scheme will be used – opt-in or opt-out?
  • if the scheme is opt-in, customers would need to confirm to firms that they wish to be included.
  • if opt-out, firms would likely be required to contact every borrower who meets the scheme's criteria.
• what rate of interest will be applied to awards?
  • it is understood that the FCA will consult on standard interest of the base rate plus 1%
• when will the scheme close?
  • we think that the FCA is likely to set a reasonably limited timeframe for claims to be made – potentially to 31 December 2026 – to prevent the claims process continuing for an inordinate amount of time, like the PPI Scandal.
• how the scheme will be policed?
  • the FCA has so far indicated that it intends to be proactive in monitoring the implementation of the scheme by firms, although this may prove easier said than done given the scale of the scheme.

How can lenders and dealers prepare?

Some of the key questions which we expect the FCA to consult upon are set out above. There is likely to be a deluge of responses to the FCA’s consultation in October 2025 and firms should be putting in place plans to provide their responses within the six-week timeframe.

It is inevitable that lenders, brokers and dealers will face questions from the FCA on their data retention policies and whether they continue to retain customer data back to 2007. As set out above, the FCA has drawn a line in the sand and we understand that its process of contacting lenders and brokers has already begun.

Firms should take steps now to identify:

• whether they hold data back to 2007;
• where the data is stored; and
• how the data can be accessed.