In a landmark judgment that has since sent ripples across the UK motor finance industry, the Court of Appeal introduced stricter standards for commission disclosure, raising significant implications for lenders, brokers, and consumers alike. In this article, we summarise what we know so far and any key developments in this ongoing story throughout 2025.
Background
Earlier in 2024, the Financial Conduct Authority (FCA) launched an investigation into potential overcharging of car finance customers under Discretionary Commission Agreements (DCAs). The investigation highlighted claims from three consumers who argued that car dealers, acting as brokers, failed to adequately disclose commission payments; undermining the impartiality of the financial advice provided and potentially leading to unfair outcomes for customers.
While the initial investigations focused on DCAs, which were banned in 2021, the Court of Appeal decision significantly broadened the scope to encompass any car finance commissions. The Court of Appeal’s hearing in these matters, delivered against the context of the FCA’s ongoing review, as mentioned above, underscores the complexity and significance of these matters for the industry.
30 March 2026 Update: FCA consumer redress scheme
FCA redress scheme
On 30 March 2026, after markets closed, the FCA announced the details of their proposed consumer redress scheme.
The announcement provides much needed clarity on the full extent of support available to consumers, and therefore, the requirements of firms in their responses to claims.
Scope
The scope of the scheme covers motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commissions was payable by the lender to the broker.
The dates covered was question during consultations, therefore the FCA is implementing two schemes:
- Covering 6 April 2007 – 31 March 2014
- Covering 1 April 2014 – 1 November 2024
How it will operate
There is a short implementation period for each so that firms can prepare, these will be up to:
- 30 June 2026 for loans taken out from 1 April 2014
- 31 August 2026 for those agreed earlier.
Lenders will have 3 months from the end of the implementation period to let consumers know whether they’re owed compensation and the amount.
There is a requirement for firms to contact consumers who haven’t complained, but only in the instance where they are potentially owed money or those who are timed out of the scheme.
The FCA has set out the stages of the process and the required timelines for firms for both consumers who complain before the implementation period ends or during the scheme, and consumers who don’t complain (but who are eligible), which can be found in their PS26-3 policy statement.
Calculations
The FCA has reported that ~90,000 consumers who cases align with the Johnson case will receive redress of all commission plus interest.
They define these cases as involving an “undisclosed contractual tie and/or DCA and very high commission of at least 50% of the total cost of credit and 2.5% of the loan”.
In all other cases, consumers should expect to receive the “average of estimated loss and the commission paid, plus interest”.
There are also interesting distinctions in APR adjustments in calculations based on the date of the agreement being claimed against:
- Post‑2014 agreements – will use an APR adjustment of 17%, based on more recent data (2017–2021) showing the average difference between DCA and non‑DCA loans. This reflects improved market practices and more moderate levels of harm.
- Pre‑2014 agreements: Use a higher APR adjustment of 21% to reflect that earlier loans generally involved more harmful forms of DCA and larger APR differences, causing greater financial loss.
Additional notes
The final design of the free to use scheme is the result of a lengthy and detailed consultation process with relevant industry stakeholders, certain aspects of the scheme have been adjusted, including:
- Eligibility
- Compensation calculations, and
- Timelines
Read full details on these adjustments in the FCA's press release.
As a result of these adjustments:
- 12.1m agreements are now eligible for compensation, down from 14.2m at consultations,
- Firms are expected to pay out ~£7.5bn in redress, down from £8.2bn, and
- The estimated total bill to firms is down from £11bn to £9.1bn.
The FCA's hope is that the introduction of the scheme will put an end to uncertainty and reduce the overall impact on access to motor finance and prices for consumers going forward. It is anticipated that the market will remain resilient and we will see continued healthy competition between lenders.
13 October 2025 Update
On 7 October, 2025 the FCA announced its long-awaited redress scheme. This addresses widespread unfair treatment of motor finance customers who took out regulated agreements between 2007 and 2024 involving undisclosed or inadequately disclosed commission arrangements between lenders and brokers.
The scheme seeks to provide timely, fair, and consistent compensation to affected customers, which translates to an estimated 14.2 million agreements (44% of all agreements made since 2007). It aims to reduce the need for court or ombudsman actions, crucially making the scheme free to access for consumers, whilst ensuring the market remains stable.
Key points:
- The scheme covers motor finance agreements with commission paid by lenders to brokers between 6 April 2007 and 1 November 2024.
- Consumers who have not already complained when the scheme starts should be contacted, where lenders can identify them, and asked if they would like to opt-in.
- It’s estimated 85% of eligible customers will take-up the scheme, leading to an estimated redress of £8.2 billion (including interest). If this is the case, the costs to firms of implementing and operationalising the scheme may be around £2.8 billion taking the total cost to £11 billion.
- The FCA estimates that this would result in consumers being compensated around £700 per agreement – the average of what the regulator estimates they have overpaid, or lost, and the commission paid, plus interest.
- Whilst considered rare, consumers whose cases align closely with the Johnson case, could expect to receive the commission plus interest. This is defined as cases involving an undisclosed contractual tie and commission equal to, or greater than, 50% of the total cost of credit and 22.5% of the loan.
- The regulator proposed lenders deliver the scheme, rather than brokers. However, the expectation is that brokers cooperate, providing information lenders need to operate the scheme promptly.
As expected, the regulator has been thorough in their calculations for compensation, stating it has been conducted in a way ‘which balances the Supreme Court’s approach and our evidence of consumer loss, to provide fairness and consistency.’
Next Steps
Consultation on the scheme runs until 18 November 2025, with final rules likely published in early 2026 and compensation commencing later in that year.
The FCA has acknowledged that many firms are considering highly automated methods for paying compensation, which could help lower estimated operational costs. The regulator will continue to update its estimates throughout the consultation as more precise data is provided, and will publish revised figures with the final scheme rules
The regulator estimates there are just over 4 million complaints already with firms and propose lenders contact these consumers before the scheme starts within 3 months. They will be included in the scheme unless they opt-out. If consumers opt-out of the scheme, they cannot opt back in.
Consumers who have not complained when the scheme starts would be contacted within 6 months, where lenders can identify them, and asked if they would like to opt-in.
Any consumers who have not been contacted can ask their firm to review their case at any time within one year of the scheme start date. The FCA will run an advertising campaign to raise awareness of the scheme.
Final rules are expected in early 2026, with compensation payments expected to begin later in that year.
Previous updates
On 1 August 2025, the Supreme Court ruled that they have largely overturned the Court of Appeal's ruling on motor finance commissions.
The Court ruled that in typical car finance arrangements a car dealer's main obligation is as sales intermediaries, pursuing their own commercial interests. Accordingly, the Court struck down arguments that undisclosed commissions amounted to “bribes” or that dealers had breached a fiduciary or disinterested duty.
However, the Court did find in one case (Johnson v FirstRand) that the relationship was unfair under the Consumer Credit Act due to a combination of a high, undisclosed commission, misleading communications suggesting impartiality, and the customer’s lack of financial sophistication.
FCA update
Following the ruling, the Financial Conduct Authority (FCA) have published their plans to consult on a compensation scheme.
The FCA will consult by early October, aiming to finalise rules for a scheme to begin paying compensation in 2026.
Assessment of unfairness in the redress scheme is expected to involve several factors together, including:
- Commission size
- Nature
- Disclosure
- Customer sophistication
- Regulatory compliance
Their consultation will cover how to assess whether the relationship between the lender and the borrower was unfair and if so, what compensation may be owed.
The scheme is expected to cover agreements dating back to 2007.
FCA awareness campaign
The FCA is also launching an influencer, online video, and radio ad campaign to raise awareness among motor finance customers that they don't need to use a claims management company (CMC) or law firm to access the industry-wide redress scheme that is being proposed.
Recent research shows that many customers are unaware they can apply without using a CMC or law firm, leaving them at risk of losing around 30% of any compensation if they claim through these routes. The FCA also continues to warn against scammers and has taken action on nearly 400 misleading CMC promotions ahead of its consultation due in October.
The much awaited Supreme Court Hearing of Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd. took place from 1st – 3rd April, 2025.
While the Supreme Court’s decision is expected to follow in a couple of months, below provides a summary of the arguments, counterarguments and interventions that are understood to be presented to the court during the hearing.
The key legal issues under review during the hearing are:
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Whether motor dealers owe fiduciary duties or lesser advisory duties to customers;
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Deciphering the scope of remedies for undisclosed or partially disclosed commissions;
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Clarifying the applicability of "unfair relationship" provisions under Section 140A CCA to commission arrangements;
Arguments from the lenders
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Primary argument: Counsel for both FirstRand and Close Brothers argued that motor dealers are not fiduciaries, meaning they do not owe a duty to act solely in the customer’s best interest when arranging finance. This would allow them to accept commissions without breaching any duties.
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Alternative argument: However, if fiduciary duties are imposed, remedies should be limited, reducing potential compensation liabilities. They argued that disclosure of commission existence (but not the amount) should suffice under existing standards.
Consumer perspective and counterarguments
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Counterarguments from lawyers representing each of Johnson, Wrench, and Hopcraft focused on claims of "bribery" and unfair relationships under Section 140A of the Consumer Credit Act (CCA). They argued that undisclosed commissions undermine trust and fairness in financial transactions.
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Further, they emphasised the need for clear fiduciary duties, or at least a requirement for disinterested advice from motor dealers. This was met with scrutiny from Supreme Court judges regarding the precise nature of the duty owed in order to understand the difference between a motor dealer and other sale situations where fiduciary duties do not apply.
NFDA and FCA interventions
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The Financial Conduct Authority (FCA) supported overturning the Court of Appeal ruling, citing that “the sweeping approach of the Court of Appeal in (effectively) treating motor-dealer brokers as owing fiduciary duties to consumers in the generality of cases goes too far”, causing potential harm to market stability. However, the FCA also cautioned judges against universally dismissing concerns over the potential for bribery in assessing the methods for commission payments and disclosures, arguing that it could leave the law open to exploitation.
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The National Franchised Dealers Association (NFDA) argued that vehicle sales and finance are intertwined, challenging the Court of Appeal’s separation of these processes. They warned that imposing fiduciary duties could disrupt standard sales practices.
Lenders are now grappling with a surge in complaints and potential compensation claims, primarily orchestrated by CMCs. This presents a significant challenge for motor finance lenders, one that we have observed intensifying in recent months.
The FCA recently estimated that motor finance lenders could receive up to 470,000 complaints related to non-DCAs in the three months to January 2025. This estimation was based on the 335,000 complaints that lenders received relating to DCAs in the three months following January 2024, when the Financial Ombudsman announced its decision to uphold DCA complaints.
We anticipate this issue will further escalate following the Supreme Court ruling in April. The flood of Data Subject Access Requests (DSARs) and complaints driven by CMCs is not merely a minor inconvenience - the volume is straining resources and inflating costs, particularly through elevated Financial Ombudsman Service (FOS) fees.
The FOS has offered some relief in their recent policy statement which amended their fee structures. From 1 April 2025, CMCs will be charged £250 for each complaint referred to the FOS, after an annual allowance of ten free cases.
- If the case outcome is in favour of the consumer, £175 will be refunded to the professional representative, meaning the CMC will end up paying £75.
- If the case outcome is not in favour of the consumer, the case fee payable by the finance provide will reduce from £650 to £475, and the £250 case fee for the CMC will remain.
This new structure aims to make the arrangements fairer and encourage CMCs to be more selective and diligent in the cases they refer. Nevertheless, the overall financial impact for finance providers remains significant.
There are particular concerns about a potential surge in complaints from CMCs in the seven weeks leading up to the implementation date, as they currently account for nearly 50% of all complaints to the service. The FOS will need to address these concerns and implement measures to mitigate the risk of a complaint surge before the new fee structure takes effect.
However, as part of the FCA’s announcement of their redress scheme on 30 March 2026, they also announced their launch of a new taskforce aimed at tackling any poor handling of motor finance claims by some CMCs and law firms. The taskforce will be dealing with issues such as: unsolicited or misleading advertising, meritless claims, multiple representation, and unfair exit fees.
The FCA have already:
- Amended or removed 800 misleading adverts
- Enabled in excess of 28,000 consumers to be able to exit contracts free of charge
- Been successful in 3 CMCs reducing their unreasonable fees, protecting over 500,000 consumers, and
- Announced 1 formal investigation.
Meanwhile, the SRA (as at 31 January 2026):
- Has 89 open investigations relating to 71 firms that manage high-volume consumer claims, and
- Closed 7 firms working in the area.
The FCA stress that that their redress scheme is free and does not require people to use a CMC or law firm. However, should they choose to do so, it is vital that they can trust those representing parties to act in their best interests.
On Monday 20 January 2025, Chancellor Rachel Reeves sought permission to intervene in the forthcoming Supreme Court case. While the Treasury acknowledges a need to fairly compensate consumers for losses suffered, their intervention is triggered by a desire to also protect car loan providers from potential multibillion-pound pay outs and windfall of claims following any ruling made this year. The Treasury fears this could cause "considerable economic harm and could impact the availability and cost of motor finance for consumers". This intervention has been welcomed by UK lenders, with shares in Lloyds Banking Group and Close Brothers rising significantly following the news.
On 17th February 2025, the Supreme Court rejected the Treasury's application to intervene. The court has also rejected applications from both Consumer Voice (a compensation advisor), and the Financial & Leasing Association (FLA) in this matter. However, applications from the FCA and trade body, the National Franchised Dealers Association, were accepted.
The Treasury has said that they respect the Court's decision, and will monitor the case closely.
2024
January - FCA review
On 11 January 2024, the FCA announced that they would be undertaking a review into the past use of DCAs and whether motor finance borrowers had been historically overcharged. This followed a high number of complaints from borrowers claiming compensation for pre-2021 commission arrangements where, in two events, the Financial Ombudsman Service found in favour of the complainants. This finding prompted the FCA to launch a review of historical commission arrangements, using the powers granted to them under s166 of the Financial Services and Markets Act 2000 (FSMA).
October - Court of Appeal ruling
The Court of Appeal issued its judgment in three key cases: Johnson v FirstRand Bank, Wrench v FirstRand Bank, and Hopcraft v Close Brothers Limited. The court ruled:
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Brokers must disclose both the existence and size of commissions.
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Brokers must provide suitable information, advice and recommendations on an impartial basis to the borrower in relation to the credit options available.
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Car dealers acting as credit brokers owe a fiduciary duty when locating finance for borrowers.
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Merely mentioning commissions in loan documents is insufficient for obtaining informed consent.
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All the aforementioned duties would apply, unless the borrower had been adequately and clearly informed that they did not apply or in the event that the broker was unable to act impartially.
November - FCA reviews
The Financial Conduct Authority (FCA) began reviewing its rules on commission disclosure, aiming to align its standards with the Court’s stricter requirements.
The initial market response to the ruling led to significant declines in share prices among those providers involved. On a broader scale, numerous motor finance providers paused underwriting new agreements in order to review their practices in light of the ruling.
Key dates in 2025
April - Supreme Court hearing
On 11 December, 2024, the Supreme Court confirmed that it will hear the appeal of FirstRand Bank and Close Brothers. The hearing is set to take place from 1st - 3rd April, 2025.
May - FCA updates
Up until 11 March 2025, it was anticipated that the FCA would set out ‘next steps’ in their review of DCAs and provide an update on motor finance non-DCA commission complaints in May 2025. However, in a statement released on 11 March and following the approval of their request to intervene in the Supreme Court hearing, the FCA has indicated it is likely to consult on an industry-wide redress scheme if their review confirms widespread failings in motor finance firms’ use of Discretionary Commission Arrangements (DCAs).
In their statement, the FCA reaffirmed their aim to ensure consumers are compensated fairly and efficiently, with firms required to assess whether customers have lost out and provide appropriate redress where necessary.
A decision on whether to proceed with the scheme will be announced within six weeks of the Supreme Court’s ruling, with further consultations on regulatory changes potentially following.
December - Complaints response deadline
On 19 December, 2024, the FCA confirmed that firms now have until after 4 December 2025 to provide final response to DCA and non-DCA complaints.
[This article was updated 31 March, 2026]
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