FCA Car Refund Plan: Will You Get Compensation?

The FCA (Financial Conduct Authority) proposed a large-scale motor finance redress scheme that could cost between £9 billion and £18 billion. It follows a recent UK Supreme Court ruling on car finance practices. This news impacts millions of car borrowers across the UK.

FCA Redress Scheme: What Is It?

The redress scheme aims to compensate consumers unfairly treated under certain car finance deals. It targets discretionary commission arrangements (DCAs) where brokers could raise interest rates without clear disclosure.This proposed scheme would cover agreements from 2007 to around 2021, when DCAs were banned (Reuters).

The Financial Conduct Authority (FCA) aims to open a public consultation by October 2025, with compensation payments likely starting in 2026. Major lenders like Lloyds, Barclays, Santander, Close Brothers have already set aside billions (Reuters).

FCA Customer Impact: Who Could Qualify?

If you bought a car with finance between 2007 and 2021, you may qualify. The scheme focuses on car loans with hidden or poorly disclosed commission fees. Most payouts are expected to be under £950 per claim. Customers who purchased more than one vehicle could be eligible for multiple compensation claims (Financial Times, The Guardian).

Drivers with PCP (personal contract purchase) or HP (hire purchase) loans are likely the most affected. The FCA said consumers treated unfairly should receive full compensation without fees from claims firms (The Sun).

How It Works

The FCA proposes an opt-out scheme, meaning eligible customers are included unless they say otherwise. This aims to reach more people without needing complaint-led claims (Regulatory & Compliance).

Firms must identify affected customers, review loan terms, and calculate redress. The FCA will provide consistent methodology. They aim to make the process simple, fair, and timely, avoiding charges by claims management companies (FCA).

The final design will be guided by principles like fairness, comprehensiveness, market integrity, and transparency (FCA).

FCA Market Effects: Banks and Borrowers

The total financial impact of the proposed redress scheme on lenders could fall between £9 billion and £18 billion. That figure may rise if broader commission practices are included. Though the Supreme Court ruled partly for the industry, it did not fully dismiss claims over undisclosed DCAs (Reuters, The Times).

Banks already preparing for this include Lloyds, Barclays, Santander UK, Bank of Ireland, Close Brothers (Reuters).

Some financial experts caution that the high cost of refunds might make it harder for consumers to access budget-friendly car finance options. But the FCA says it will balance consumer protection with market stability (The Guardian).

FCA Timeline: When Will Payments Start?

Following the UK Supreme Court’s early August 2025 ruling, the FCA has six weeks to decide on initiating the redress process, with a consultation phase scheduled by October and payouts expected next year (FCA).

Current regulations give firms until 4 December 2025 to address related consumer complaints. The FCA may extend that deadline to align with the redress timeline (FCA).

FCA Risks & Consumer Advice

Experts warn consumers should not rush to claim via law firms yet. Early action may cost up to 30% in fees. The FCA aims to make the process free and simple (Lexology, FCA).

Martin Lewis and consumer advocates advise waiting for official FCA guidance before paying third-party services (The Independent, The Times).

FCA is engaging consumer groups and firms to shape the scheme’s structure. This is a chance to influence fairness standards before final rules are set (avyse.co.uk, FCA).

How Much Could You Get?

Imagine you took out a £15,000 car loan in 2018 with a hidden £1,500 commission. Based on FCA review and interest, you might receive around £950 compensation. If you bought two cars with similar terms, you potentially could claim twice.

FCA Design Choices: Opt-in vs Opt-out

The proposed opt-out model would automatically enroll affected customers unless they actively choose to withdraw. This helps ensure broader coverage. An opt-in model requires customers to register, which may leave many unaware or excluded. The FCA will consider both, aiming to strike a balance between fairness and practicality (The Times, Financial Times).

What Comes Next?

This redress scheme marks one of the FCA’s largest consumer interventions since the PPI scandal, where banks paid over £40 billion. Much less dramatic but still substantial, this motor finance case could reshape trust in UK car financing. Consumer confidence may improve if the scheme works smoothly.

Businesses providing data reconciliation, claim logistics, or compliance advice may benefit from increased demand (The Guardian, avyse.co.uk, ainvest.com).