The Financial Conduct Authority’s industry-wide motor finance redress scheme has begun its operational phase this week, capping more than two years of regulatory review and a Supreme Court detour, and turning what had been a slow-moving compliance problem into an immediate cash drain on Britain’s biggest auto lenders.
The scheme, the FCA’s first market-wide consumer redress framework since the Payment Protection Insurance saga, requires every authorised motor finance provider that wrote discretionary commission arrangements (DCAs) or undisclosed broker commissions between 2007 and 2021 to identify in-scope customers, calculate compensation by reference to the regulator’s prescribed methodology, and write to those customers within an initial twelve-month window. Industry implementation playbooks, signed off by the FCA in early April, set a first-batch outreach target of 1.7 million letters by the end of July 2026.
How the scheme works
Under the final policy statement published by the FCA in February 2026, the calculation methodology hard-codes a presumed loss equivalent to the difference between the commission a broker actually received under a DCA and a benchmark rate the regulator considers consistent with adequate disclosure. Where finance agreements were written via undisclosed flat-fee commission models — the second category brought into scope after the August 2025 Supreme Court judgment in Johnson, Wrench and Hopcraft — a separate tariff applies, with smaller average payouts but a far larger eligible population.
The Financial Ombudsman Service, which had paused tens of thousands of motor finance complaints since January 2024, is acting as the appeal route for any consumer who disputes a lender’s calculation. Unlike PPI, however, there is no claims-management free-for-all: the FCA has explicitly warned that fees charged by claims-management companies on automated payouts will be considered “egregious” and grounds for enforcement.
City liability still in flux
Sell-side estimates of the total bill have narrowed only modestly since the Supreme Court ruling. Jefferies, RBC Capital Markets and Autonomous Research published updated notes through April pencilling industry-wide redress and operational costs at £8bn to £14bn, with central estimates clustering around £11bn.
Lloyds Banking Group remains by some distance the most exposed UK-listed lender through its Black Horse subsidiary, having taken a cumulative £1.45bn provision through 2025. Close Brothers, the FTSE 250 specialist whose share price has roughly halved since the original Court of Appeal ruling, is carrying the heaviest relative burden, with provisions of around £165m against a market capitalisation now hovering near £1bn. Santander UK Consumer Finance and Barclays Partner Finance — the latter having exited new motor lending in 2019 — also fall in scope, alongside captive finance arms operated by Volkswagen Financial Services, Stellantis Financial Services and BMW Group Financial Services. The Finance & Leasing Association estimates that approximately 65 per cent of UK new and used car purchases were financed via lenders that operated DCAs at some point in the relevant period.
What the City is watching next
Three live questions sit on top of the scheme. First, how aggressively the FCA will police lender calculations, particularly around interest add-ons, where the regulator has signalled spot checks. Second, whether the Treasury will respond to industry lobbying for a formal cap on cumulative liability, an idea floated last autumn but never officially endorsed. And third, what the scheme means for the cost and availability of motor finance going forward, with the Society of Motor Manufacturers and Traders warning in its April briefing that consumer monthly payments on new vehicles have already climbed roughly four per cent year-on-year as lenders rebuild compliance margins.
For the Square Mile, the immediate impact is balance-sheet certainty: the next two earnings cycles will, for the first time since the Court of Appeal’s 2024 judgment, finally allow analysts to model this conduct event with something approaching precision.
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