FCA’s Redress Principles in the Car Finance Scandal

The Financial Conduct Authority (FCA) has long been the UK’s watchdog for fair treatment of consumers in financial markets and has built considerable experience in defining and enforcing redress schemes. 

Its latest challenge, the Car Finance Scandal, has prompted a fresh look at how these schemes are designed and delivered, in an attempt to balance outcomes for consumers, business and the economy at large. 

As the FCA prepares to potentially launch a formal redress scheme following a landmark Supreme Court ruling, it’s worth examining how its principles compare with previous high-profile schemes like Payment Protection Insurance (PPI) and Interest Rate Hedging Products (IRHP) and what this means for firms and consumers

Understanding the Car Finance Scandal 

At the heart of the scandal are Discretionary Commission Arrangements (DCAs), which allowed car dealers and brokers to adjust interest rates on finance deals, earning higher commissions for higher rates. This practice, banned by the FCA in 2021, led to widespread consumer harm - many paid more than necessary without understanding how commissions influenced their loan terms. 

Following years of rejected complaints and mounting legal pressure, the Supreme Court ruled in August 2025 that non-disclosure of commission arrangements could constitute an unfair relationship under the Consumer Credit Act. This ruling opened the door for a potential FCA-led redress scheme, with a consultation to launch in early October 2025.

FCA’s Principles for Redress in Car Finance 

In its public statement, the FCA outlined several guiding principles for any future redress scheme: 

• Comprehensiveness: Cover as wide a range of complaints as possible so consumers don’t have to go to court.
• Fairness: Ensure approaches to determining breaches and calculating redress are fair to consumers and firms.
• Certainty: Give consumers and firms finality.
• Simplicity and Cost-effectiveness: Make it easy for consumers to participate without needing lawyers or claims management companies (CMCs).
• Timeliness: Resolve the majority of claims within a reasonable timeframe
• Transparency: Provide clear explanations of decisions and publish data to build confidence.
• Market Integrity: Support the long-term availability of high-quality, competitively-priced motor finance.

How Do These Principles Compare to Past Schemes? 

Payment Protection Insurance (PPI) 

The PPI scandal remains the UK’s largest consumer redress programme, with over £16 billion paid out by 2014. The FCA’s approach included: 

• Fairness: Firms were required to handle complaints fairly and consistently.
• Comprehensiveness: Over 13 million complaints were processed.
• Transparency: The FCA published regular updates and thematic reviews.
• Timeliness: The scheme ran for over a decade, with a final claims deadline in 2019.

Interest Rate Hedging Products 

This scheme targeted small businesses mis-sold complex derivatives. Key features included: 

• Fairness: Redress aimed to restore businesses to their original financial position.
• Simplicity: Independent reviewers assessed claims, reducing the need for legal action.
• Transparency: Banks were required to explain decisions and offer face-to-face meetings.
• Timeliness: Basic redress was delivered relatively quickly, though consequential loss claims took longer.

What does this mean for Consumers?

Consumers who financed vehicles before January 2021 may be owed compensation if dealers inflated interest rates using discretionary commission arrangements. Unlike PPI and IRHP schemes, this redress is designed to be simpler and more accessible, with no need for lawyers or claims companies. Most payouts are expected to be under £950, and consumers may be automatically included (they are considering both ‘Opt In’ and ‘Opt Out’ approaches). The FCA aims to avoid the complexity and high fees seen in PPI, and the business-focused structure of IRHP. Consumers could choose review their agreements and submit complaints now, while awaiting the scheme’s formal launch in 2026.

What does this mean for Businesses? 

The FCA’s proposed redress scheme for the car finance scandal presents serious implications for businesses, particularly motor finance lenders and brokers. One of the most pressing challenges is data management - firms will be required to identify affected customers using historical records, including loan agreements, commission structures, and disclosure practices. This means accessing and analysing data that may be stored across legacy systems, scanned documents, and call recordings. The FCA expects firms to maintain a centralised, well-governed dataset to ensure fair and consistent redress decisions.