Published by Global Banking & Finance Review®
Posted on August 3, 2025
3 min readLast updated: January 22, 2026
The FCA proposes a £9-18 billion redress scheme for motor finance claims following a Supreme Court ruling, impacting major UK banks.
By William James
LONDON (Reuters) -Britain's Financial Conduct Authority (FCA) on Sunday proposed a redress scheme for consumers with motor finance compensation claims following last week's Supreme Court ruling, estimating the cost at between 9 billion and 18 billion pounds ($12 billion and $24 billion).
Friday's court decision had calmed the industry's worst fears about the size of the bill it would face over improperly disclosed commissions on car loans - a sum analysts had estimated could run to tens of billions of pounds.
However, after considering that ruling, which was largely seen as a win for the banks, the FCA still proposed an industry-wide redress scheme for certain types of compensation claims.
"At this stage, we think it is unlikely that the cost of any scheme, including administrative costs, would be materially lower than 9 billion pounds and it could be materially higher," the FCA said in a statement.
It said the total cost was hard to estimate. It cautioned that any estimates were indicative and susceptible to change, but it said those in the middle of the 9 billion to 18 billion pounds range were "more plausible."
Some level of further compensation payout had still been expected by banks after Friday's ruling, placing investor focus on the FCA's decision over whether to launch a full redress scheme, what it might look like, and how much it would cost.
Lenders, including Lloyds Banking Group, Close Brothers, Barclays and the UK arms of Santander and Bank of Ireland, have already set aside nearly 2 billion pounds between them to cover potential motor finance compensation claims.
The FCA said firms should now refresh estimates of their liabilities, increase provisions where necessary, and keep markets informed.
CONSUMER FAIRNESS
Prior to the Supreme Court ruling, which overturned a previous court decision, there were fears the cost of redress could rival that of a payment protection insurance mis-selling scandal, which cost lenders over 40 billion pounds between 2011 and 2019.
The proposed motor finance scheme would cover so-called discretionary commission arrangements - those where the broker could adjust the interest rate offered to a customer - if they had not been properly disclosed.
The regulator said agreements dating back to 2007 should be considered and it would publish a consultation by early October, with an expectation that people start receiving compensation in 2026.
"Our consultation will cover how firms should assess whether the relationship between the lender and borrower was unfair for the purposes of our scheme," the statement said.
"Any redress scheme must be fair to consumers who have lost out and ensure the integrity of the motor finance market, so it works well for future consumers."
The consultation will also look at how interest is calculated on compensation, saying it estimated a simple annual rate of around 3% would be applicable.
The regulator said it had not decided whether the scheme should require customers to opt in, or be automatically involved unless they opt out.
($1 = 0.7531 pounds)
(Reporting by William James; Editing by Toby Chopra and Joe Bavier)
The FCA proposed a redress scheme with estimated costs ranging from £9 billion to £18 billion.
The proposal followed a Supreme Court ruling that addressed concerns about improperly disclosed commissions on car loans.
The scheme would cover discretionary commission arrangements where brokers could adjust interest rates if they were not properly disclosed.
The FCA expects that people may start receiving compensation by 2026 after a consultation process.
The FCA advised firms to refresh their liability estimates, increase provisions where necessary, and keep markets informed.
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