Motor Finance Commission: The State of Play

No matter how bad things are, they could always be worse 

In this short blog, we share some thoughts and perspectives on the Supreme Court’s Ruling and the FCA’s response to this, in which it outlined its intention to consult on a £9 to £18 billion industry wide redress scheme for motor finance commissions.   

We don’t need to mention that it has been a busy few days in the motor finance regulatory compliance space.   

Never has there been so much interest in/airtime devoted to this particular subject matter!  

If only it was for positive reasons, as opposed to it being driven by potential scope and size of a multi-billion-pound redress bill for commission disclosure.  

Anyway, the much-anticipated Supreme Court Ruling was released on Friday and concluded that the claims related to fiduciary duty, secret commissions, half-secret commissions, and bribery should not be upheld. 

This was positive for so many reasons, not least the fact that it negates the need for us to provide long winded explanations of what these legalistic terms actually mean, how they might be deemed to apply in different dealer or broker led sales scenarios and how they should be interpreted from a redress perspective! 

The Supreme Court did uphold the unfair relationship claim which (in overly simplistic terms) was based on the commission rate being too high (55% in this case), the disclosure regarding the existence of this commission/the commercial relationship between the dealer and the lender being too minimal and the customer being ‘commercially unsophisticated.’ 

At the end of a no-doubt busy weekend (which involved calls with numerous motor finance providers, market analysts, the Treasury and no doubt lots of other external and internal stakeholders), the FCA announced its next steps.   

In summary: 

• They will publish a Consultation Paper on an industry-wide scheme to compensate motor finance customers who were treated unfairly.  

• This will be issued in early October 2025, and the consultation period will run for six weeks. 

• The FCA are silent on timescales beyond this, save for the fact that they expect redress payouts to commence at some point in 2026. 

• The scheme will cover Discretionary Commission Arrangements (“DCA”) that were not properly disclosed. 

• The FCA will consult on whether non-DCA models should be included, based on the Supreme Court’s findings.  

• It is unclear whether it will be an opt-in or opt-out scheme; however, the FCA’s announcement has encouraged customers to register complaints which may make an opt in scheme an easier sell. 

• At this stage the FCA are proposing that any scheme goes back to April 2007 (i.e. the date at which the FOS assumed responsibility for consumer credit complaints) which will create some material challenges, both from a record -keeping and overall cost perspective. 

• The Supreme Court indicated that there are a number of factors that will drive whether the customer was treated unfairly, including the nature of the commission, the size of the commission vis a vis the cost of credit, the extent of the disclosure, customer characteristics and the regulatory rules in force at the time.  

• This could imply that cases will need to be determined based on their specific circumstances, which may make devising a case determination methodology more challenging (though FCA should help with this if it is a Section 404) and places even more emphasis on the adequacy of the records that were made/retained. 

• What will the FCA propose for situations where records do not exist, or do not contain sufficient detail to form a clear view of these circumstances?

• The FCA has stated that, when determining potential approaches to calculating redress, it will reflect on a de-minimis level and ensuring that customers can continue to access affordable motor finance (which is positive for lenders). 

• The FCA has also said that it will consult on the statutory interest rate to be based on the base rate at the time plus 1% which is also positive and aligned to the FOS’ direction of travel. 

• The FCA has said that it will extend the complaints handling deadline once again, to align with the proposed timetable for any scheme.    

• FCA CEO Nikhil Rathi has been clear that firms need to get on with their preparation for redress - “We know it is difficult. But you can’t say the law has been broken and it is too difficult to even try to put things right. Now is not the time to haggle with us but to help put things right for consumers.” 

There is a lot to unpick here. 

There are also a number of questions that businesses should be reflecting upon, some of which are new and some of which haven’t really changed since the outset. 

• Under its new supervisory model, the FCA is keen to work more collaboratively with regulated firms. Yesterday’s announcement suggested that it would be ‘engaging widely’ to help shape the scheme. The firms that talked to the FCA over the weekend suggested that they were in listening mode and were gathering ideas. As our previous publications on this topic have suggested, now is the time to engage constructively and credibly to help shape the outcome. How are you intending to do this? 

• How much preparation has been undertaken to date and do you have a grounded understanding of your portfolio, i.e. the nature commission arrangements in place, how these operated in practice, the rates and commission amounts paid at a customer level and the nature/extent of the disclosures made from 2007 onwards? What gives you confidence in your starting position, before you start overlaying the potential redress scheme parameters to calculate your potential redress bill? 

• It will be interesting to see where we land on the commission rate. The Supreme Court stated that 55% was a ‘high’ commission rate. Under Plevin, 50% was deemed ‘high.’ Will the FCA go lower? We know that, as part of its analysis, it has specifically requested information on commission arrangements with rates above 40% from firms. Given the different models in place across the market, should the FCA consider a baseline rate and a baseline monetary amount (this may be where any de-minimis might come in), and would this create a more level playing field? How will you go about modelling the impact of different rates or monetary amounts on your potential redress bill? 

• Many motor deals can be quite complex. There can be lots of negotiation between the lender/dealer and dealer/customer and tinkering of the deal, to get it to a place where it is acceptable to all parties. This may involve discounting the vehicle price, dealer contributions to the deposit, flexing the value applied to any part exchanges, the provision of extras (i.e. alloy wheels, parking sensors or even service plans) or changing the term of the finance. The borrower may have paid a higher interest rate (under DCA) and/or a higher-commission rate, but was the overall cost higher once these factors have been taken into consideration? How are you intending to unpick the motor deals for your own modelling and ensure that the FCA’s prescribed approach to determining cases and calculating redress pays due regard to these intricacies? 

• Ahead of the Consultation Paper, it is expected that customers will continue to be invited (by the FCA) or encouraged (by CMCs)  to put in motor finance complaints. Firms should continue to anticipate high complaint volumes. Whilst a proportion of these complaints will be handled under any Scheme, there are likely to be high volume that are not. Firms will need to engage with the FCA to drive a pragmatic and proportionate approach to these. How have you engaged with the FCA on approaches to dealing with complaints that have been received but may fall outside of the scope of any redress scheme?  

• Robust governance will be critical in navigating the upcoming consultation and ensuring readiness for implementation of the redress scheme in 2026. Boards should evaluate the operational and financial impacts of designing and delivering a redress scheme and determine whether existing governance frameworks are equipped to manage the process effectively. Establishing cross-functional teams early to lead on data readiness, broker engagement, and customer communications will be key to demonstrating a proactive approach. How do your current governance structures support transparent decision-making and regulatory engagement? 

• Considering the Supreme Court’s ruling, firms should review their existing customer communications to ensure these are up to date and reflect the latest position in a way that is clear and easy to understand. Firms can also proactively plan for the communication of the Scheme and complaint responses. What has the process been for keeping customers informed of developments and how this affects them? How would you describe your communications strategy in advance of the Scheme? 

We continue to engage with the regulators and firms impacted by this contentious issue.   

We can help you prepare your input to the FCA’s pending Consultation Paper.  

At the same time, we can support you in assessing your exposure, designing defensible redress logic, and preparing for operational delivery.  

Whether you're a lender, broker, or in wind-down, we’ll help you stay ahead of regulatory expectations and deliver fair outcomes that stand up to scrutiny.