In March 2026, the UK Financial Conduct Authority (FCA) released details of its car finance redress scheme for customers who were mis-sold car loans.

The scheme is expected to compensate for 12.1 million eligible car, van, or motorcycle loan agreements taken out on Personal Contract Purchase or Hire Purchase between April 2007 and November 2024. The scheme will likely cost lenders approximately £9.1bn.

How the Motor Finance Redress Scheme Developed

In 2021,the FCA banned DCAs, which allegedly enabled car dealerships to receive a commission from lenders based on the interest rate that the dealer charged to car buyers. The higher the interest rate, the more commission earned.

According to the FCA, these arrangements incentivized car dealers and brokers to charge customers high interest rates.

In January 2024, the FCA carried out an investigation into pre-2021 DCA commissions paid by lenders to dealers when offering loans to car buyers. The regulator found that dealers were allowed to choose from a range of interest rates and set high ones in order to boost commissions – without disclosing these hidden commission arrangements to consumers.

In October 2024, the UK Court of Appeal ruled that car dealers couldn’t receive a commission from finance firms unless they had first secured ‘fully informed consent’ from the buyer. This created another category of commission disclosure mis-selling that would have left lenders facing costs of up to £44bn. However, in August 2025, the Supreme Court partially overturned the decision and reduced the number of commission disclosure complaints by holding that dealers did not owe a fiduciary duty to car buyers.

How the Scheme Will Work

Car buyers will be eligible for compensation if they were sold a loan with a Discretionary Commission Arrangement (DCA) and not told about it. They can also put in a claim if they were not informed about a high commission arrangement (where the dealer is paid at least 39% of the cost of credit, and 10% of the loan amount), or if the agreement contained clauses that gave a lender exclusivity or right of first refusal.

The scheme has two parts. The first (which could be subject to legal challenge) is for agreements entered into between 6 April 2007 and 31 March 2014. The second is for agreements entered into between 1 April 2014 and 1 November 2024.

Banks and Lenders Gear Up for Lawsuits Against the Scheme

Banks, car finance providers, and claims management firms announced that they are preparing legal challenges against the redress scheme – including on the grounds that it’s too broad, and also that it’s inconsistent with the 2025 Supreme Court ruling that dealers don’t owe a fiduciary duty to their customers, according to reporting by the FT.

The same FT report also states that there could be an additional challenge over redress for agreements that date back to 2007 on the basis that many lenders no longer have records of the transactions.

Some are questioning whether banks and finance providers should challenge the FCA’s scheme at all. One lawyer currently advising a lender has pointed out: “Ultimately the scheme is better for the industry as it brings closure.”

The FCA’s motor redress scheme is the biggest one of its kind, and will no doubt be a hot topic of discussion in Panel 21 of the Perfect Law Global Class Actions & Mass Torts Conference to be held from 22-23 April in London. The yearly event is a space for attendees to keep up to date on existing and upcoming mass torts and class actions as experts, thought leaders, and those closely involved in the cases discuss and debate the latest trends and developments. The conference agenda is available at: https://perfectlaw.co.uk/perfect-law-2026-agenda-london/