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Millions of people in the UK use car finance to buy new and used cars each year, and in March 2025, consumer car finance volumes rose by 11% while used car finance increased by 9% compared to last year, according to the Finance & Leasing Association (FLA). Now, with investigations into past commission practices, big changes could be coming – including a redress scheme that might see some car buyers getting compensation.

This is all happening as the Financial Conduct Authority (FCA) waits for a crucial Supreme Court ruling due in July 2025, which will decide if car dealers broke the law by hiding commission details from customers.

In its latest update, the FCA said if the court sides with drivers, it’ll likely set up a redress scheme to get compensation straight to people – no need for claims companies or lawyers.

Why is a redress scheme being considered?

Until 2021, many car dealers and finance brokers used something called a Discretionary Commission Arrangement (DCA). This meant brokers could increase the interest rate on a finance deal, and earn more commission as a result. This practice was banned in January 2021, but questions remain about whether customers were treated fairly before the ban.

Since then, thousands of customers have complained that they weren’t properly informed about these commissions. Most of these complaints were rejected by lenders, but in 2024, the Financial Ombudsman Service sided with consumers in two key cases, increasing pressure on the industry to respond.

In January 2024, the FCA launched a full review of historic car finance commission arrangements.

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The court rulings and what comes next

In October 2024, the Court of Appeal ruled that it was unlawful for dealers to receive commission without clearly disclosing it to customers and getting their informed consent. This is even if the commission was fixed rather than discretionary.

In April 2025, the UK’s highest court held a three-day hearing with two lenders, Close Brothers and FirstRand Bank (MotoNovo). The Supreme Court will share its judgment in July, and what they decide could really affect whether a redress scheme gets started.

What would a redress scheme look like?

If the FCA decides lots of people were affected, they’re considering an industry-wide redress scheme. Here’s what that might involve:

• Clear and simple rules on how claims are handled and how much money people might get back.
• A straightforward process that’s easy to understand and use, without the need to hire a lawyer or pay a claims management company (CMC).
• Checks in place to make sure companies play by the rules.

Also, a heads-up: the FCA says be careful about signing up with CMCs now, as they may charge fees of up to 30% for something that might be free later.

Who would be covered?

Any redress scheme would cover a wide range of cases: essentially, anytime customers weren’t properly told about commissions, whether they were fixed or discretionary.

The scheme could work two ways:

• Opt-in: You’d have to say you want to join.
• Opt-out: You’d be included automatically unless you say no. This is easier for people but harder and more expensive for companies to set up.

How much could consumers get?

No exact numbers have been shared yet. Some law firms and claims companies have thrown out guesses, but those might not match what the FCA actually decides.

The FCA will consider:

• What it finds in its review
• The Supreme Court’s ruling
• Its job to keep the finance market fair and competitive

The goal is to be fair without shaking things up too much. If too many companies go under because of redress payouts, it could make getting car finance harder or more expensive for everyone.

How will this impact car dealerships?

A possible motor finance redress scheme could hit car dealerships hard, especially if the Supreme Court rules they should have acted in customers’ best interests and been more transparent about commissions.

Some lenders are already preparing. For instance, Ford’s finance arm, FCE Bank, has set aside £61m, while Banco Santander – finance partner to Volvo and MG – is reportedly considering restructuring its UK car finance arm due to growing concerns.

The National Franchised Dealers Association (NFDA) is closely involved, with chief executive Sue Robinson saying they’re working with the FCA through the Consumer Redress Scheme Design Panel to make sure dealers’ voices are heard.

As the industry awaits the Supreme Court’s ruling, dealers could be facing major changes: from financial pressure to tighter rules and more oversight on how finance is sold.

What’s the timeline?

Here’s a breakdown of what to expect next:

• July 2025: The Supreme Court is expected to make its decision.
• Within about 6 weeks after that: The FCA will let us know if they’re going ahead with a redress scheme.
• If they do: They’ll open up a public consultation to share all the details, such as how the scheme would work, how compensation would be calculated, and what it might cost overall.
• 2026: If everything gets the green light, the scheme would likely start rolling out.

Meanwhile, the FCA has put a pause on firms having to respond to related complaints until December 2025, to keep things fair and avoid confusion. They’re also looking over the current rules for car finance companies and might suggest some changes once the court decision is out.

The bottom line: if you bought a car on finance before 2021 – especially through a dealer or broker – you might be able to get some compensation. But don’t rush to sign up with a claims company just yet. It’s best to wait for the FCA’s official update later this year. A simple and fair scheme could be on its way that’s designed to help you out.

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