The Financial Conduct Authority (FCA) has confirmed it will make a decision within six weeks of the Supreme Court’s upcoming judgment on whether to introduce an industry-wide consumer redress scheme for motor finance, a move driven by the urgent need to avoid market paralysis and restore certainty to consumers and firms alike.

In a detailed update, the regulator said its proactive engagement with stakeholders is designed to ensure it can act swiftly following the ruling, expected in July. The potential scheme would seek to address harm caused by historic discretionary commission arrangements (DCAs), which allowed car dealers to raise interest rates in return for higher commissions — a practice banned in 2021.

The FCA’s six-week window to confirm next steps — notably shorter than typical consultation periods — underscores the scale of disruption the uncertainty has already caused across the £40 billion motor finance market. More than two million new and used cars are financed each year in the UK, and ongoing ambiguity about possible redress obligations has placed pressure on lenders, car dealers, and consumer trust.

“We are doing everything we can to prepare so we can act quickly once the Supreme Court decision is handed down,” the FCA said. “Our goal is to bring greater clarity to affected consumers, firms and investors and prevent disorderly or inefficient outcomes.”

The Court of Appeal ruled in October 2024 that commissions paid to brokers, including fixed or discretionary payments, were unlawful if not adequately disclosed to consumers. That judgment significantly widened the potential scope of consumer harm and triggered an increase in complaints, prompting the FCA to extend the response deadline for firms to December 2025.

The FCA reiterated that while legal thresholds for launching a redress scheme remain high, it is seriously considering the option. A final decision will hinge on whether the Court confirms consumers were likely to have suffered loss that warrants legal remedy — and whether a collective redress approach would be more effective than leaving claims to be resolved case-by-case through courts or ombudsman services.

Stakeholder engagement has already begun, and the FCA is weighing critical design choices such as whether the scheme should be opt-in or opt-out, how redress should be calculated, and how to ensure claims are processed efficiently without destabilising the market.

The regulator also issued a warning to consumers against rushing to claims management companies (CMCs) or law firms, cautioning that such services may be unnecessary and costly — with fees of up to 30% potentially eroding any compensation.

“Any redress scheme must strike a balance,” the FCA said. “It must be fair to consumers who lost out, but also ensure the continued functioning of the motor finance market. A collapse of firms could reduce competition and increase borrowing costs.”

The FCA will publish a formal consultation — including draft rules and a cost-benefit analysis — if it decides to proceed following the court’s decision. Final rules are expected in 2026 should a redress scheme go ahead.

In the meantime, the regulator is urging firms, consumers, and trade bodies to provide input on the principles and potential scope of the scheme to ensure any future redress process is proportionate, effective, and grounded in evidence.

Reactions

“The FCA’s statement offers some reassurance that a redress scheme won’t be rushed, but for small lenders and brokers, the uncertainty is already starting to hit. While the regulator rightly wants to balance fairness with proportionality, smaller firms still face months of limbo, with major operational and financial consequences,” said George Holmes, business finance expert and Managing Director of Aurora Capital.

“The FCA update further underlines the complexity of the redress landscape that needs to be navigated. There are no easy solutions here. It’s critical that firms ready themselves, as far as they can, so they can act swiftly when the policy direction becomes clearer,” said Romana Pearson, Senior Advisory Director at Square 4 Partners.