Following the long-awaited decision from the Supreme Court on 1 August 2025, the FCA has announced its consultation on an industry-wide redress scheme to compensate motor finance customers who were treated unfairly. The FCA intends to publish its consultation paper by early October 2025 and outline the scheme’s rules following the consultation so that consumers start receiving compensation during 2026.
As expected, the scheme will cover consumers affected by discretionary commission arrangements (DCA) that have not been properly disclosed. However, the FCA will also be consulting on which non-discretionary commission arrangements should be in scope of the scheme given the Supreme Court’s decision in the Johnson case which found that even fixed commissions could result in an unfair relationship between a lender and a consumer – Factors which could point towards an unfair relationship being:
More information on the Supreme Court judgment, together with thoughts on what the redress scheme may look like can be found here: Motor finance – what could the FCA’s redress scheme look like? | Grant Thornton
FCA advice to motor finance firms
While there are still a lot of unanswered questions, it is now clear there will be an industry-wide scheme, with the FCA estimating total costs could be between £9 billion and £18 billion. Accordingly, the FCA has reminded firms in its recent announcement that:
The FCA acknowledges there will be a degree of uncertainty estimating the costs until scheme rules are finalised, but it is important that firms act now to understand the possible financial implications and make appropriate provisions.
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Navigating director duties in uncertain times
In times of uncertainty, it's particularly important that directors (and senior management) take a proactive and well-informed approach to governance. Directors need to be mindful of their duties which are designed to protect stakeholders, promote good corporate governance and maintain accountability. Central to this are core responsibilities, including:
- Promoting the success of the company
Directors must act in a way they believe will benefit the company’s members, having regard for the interests of stakeholders such as consumers, employees, and suppliers
- Exercising independent judgement
Decisions should be supported by critical evaluation of all information, for example assessing current commission models or reviewing compliance and risk management functions to ensure they are fit for purpose
- Exercising reasonable skill, care, and diligence
Directors are expected to apply their expertise effectively, act prudently and remain informed about their company’s affairs, for example remaining up to date with regulatory developments, identifying data requirements and skill retention at senior levels, among other matters that could impact the business
As firms assess the implications of a scheme and prepare for the period ahead, directors should ensure all key strategic, operational and financial decisions are well-documented.
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Proactive actions directors can take now
Considering the FCA’s recent announcement and the Supreme Court’s judgement, the below are key actions directors can take now which will inevitably help prepare for a scheme. It will also allow firms to engage and provide feedback to the FCA as part of the consultation process:
- Assess the extent to which your firm has used brokers and understand the commission arrangements in place
- Identify the population of customers that could be in scope of the scheme, including both DCA and non-DCA agreements
- Consider the format, quality and availability of data, including any reliance on legacy systems or data held by third parties
- Triage and investigate complaints, and process DSAR requests proactively, noting firms currently do not have to provide a final response to relevant motor finance complaints before 4 December 2025. However, the FCA is consulting on further extending this deadline to align with the timetable for compensation payments associated with the proposed redress scheme
- Ensure timely access to relevant financial and operational MI reporting
- Identify the operational requirements to undertake a remediation exercise, including the need for additional internal resource or third-party support
- Undertake detailed scenario analysis, with cash flow and liquidity modelling, to estimate potential liabilities and understand what the business can sustain, both financially and operationally. This exercise may also highlight areas of potential stress or vulnerability and triggers that may lead to financial pressure
- Establish how the remediation exercise will be funded
- Set up a project management office to oversee the design, implementation and execution of the redress scheme, ensuring coordination of functions across the firm and reporting to key stakeholders
- Maintain open and proactive dialogue with key stakeholders, such as the FCA, lenders and investors, and senior leadership
Where a firm may be experiencing financial difficulties or have concerns about the impact on future performance, directors should engage with their advisors (both legal and financial) early to consider options available and how best to navigate the challenges.
We have advised on restructuring engagements for many firms in the consumer credit sector who have needed to navigate challenges associated with large-scale remediation exercises. We can bring together specialists from across Grant Thornton to provide the resources and skillsets required, ensuring you are well positioned to respond to the outcome of the FCA’s consultation and final rules set out for the scheme.
For more information or advice, contact Chris Laverty or Jarred Erceg.
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