An Update on the FCA and Motor Finance Commissions

Motor Finance Commissions & An Update on the FCA

The launch of brand-new EVs may be a little overshadowed by some significant news breaking today (4 August 2025) on motor finance. Our industry regulator, the Financial Conduct Authority (FCA), is now consulting on a motor finance compensation scheme further to last Friday’s Supreme Court decision, which we reported on in our news and views section yesterday.

The Court rejected a proposition that car dealers or brokers owe a fiduciary duty to their customers. In doing so, the potential for bribery between lenders and the dealership / broker was also rejected. The Court also went on to recognise that businesses, like e-car lease, are not agents for the customers and are negotiating their own commercial interest.

However, one of the cases was upheld where a customer was subject to commission which was 55% of the total charge for credit and did not receive full disclosure on the existence and nature of this commission. In that particular case, the customer was led to believe a panel of funders was being used when in fact there was only one. With this judgment in mind, the FCA’s next steps were clearly key to us all in the motor finance industry.

Last night (3 August 2025) the FCA did confirm that it will be consulting on a compensation scheme, which you can now find on the FCA website, In summary:

•  The FCA believe that many motor finance firms were not complying with the rules or law;
•  Relevant information about the commission on the loans was not always provided;
•  A proposed compensation scheme will be established which is “fair and easy” to participate in;
•  Most individuals will receive less than £950 per agreement;
• The final cost of this compensation scheme is estimated at around £9 billion to £18 billion;
•  The consultation will launch in October 2025 with first compensation payments set for early 2026; and
•  The FCA are advising customers to complete this form  and not engage with the claims management or law firms (who will take around 30% of the claim).  

The car finance claim form is a simple overview of how a customer of a car, van or motorbike who have used motor finance can claim where the firm did not properly identify the commission arrangements.

The FCA have not yet quantified exactly what compensation will be made available, and how, but there are a list of elements being considered.

As part of this consultation the FCA will be looking into practices which arose pre-January 2021 in which some finance companies allowed the car dealer, or broker, to adjust the interest rates on a deal with higher interest arrangements often leading to higher commission. This discretionary commission arrangement (DCA) was banned in 2021 but the FCA are reporting that many customers have complained regarding a failure to disclose this.

Moving on from the Court decision, the FCA are considering a consumer redress scheme with rules on how finance companies should assess and calculate claims. However the FCA will at least be speaking with consumer groups, firms and trade bodies as part of this process. Claimants will have to choose one of two routes:

•  Under an opt-in compensation scheme, you would have to confirm to your provider by a certain date that you wished to be included.
•  Under an opt-out compensation scheme, you would automatically be included unless you opt out.

How far the obligations on commission will extend is still uncertain, especially as each aspect of the motor industry operates differently.