What law firms, lenders, brokers, and consumer advisers need to know about the FCA’s 360-page consultation on historic motor-finance commission arrangements.
On 7 October 2025, the Financial Conduct Authority (FCA) published Consultation Paper CP25/27, outlining proposals for a wide-ranging Motor Finance Consumer Redress Scheme.
At more than 350 pages, the paper represents the FCA’s most detailed response to years of concern over discretionary commission arrangements (DCAs) and potentially unfair car-finance sales.
The paper follows the Supreme Court’s decision in Hopcraft v Close Brothers Ltd earlier this year and could pave the way for redress running into billions of pounds across the motor-finance sector.
Below, 8PP addresses the key questions arising from the consultation.
- What is CP 25/27 and why does it matter?
CP 25/27 is the FCA’s consultation on a proposed statutory redress scheme covering personal contract purchase (PCP) and hire-purchase agreements.
It is significant because it could require firms to compensate customers for undisclosed or excessive commissions, even where no individual complaint has been made.
For lenders, brokers, and their legal advisers, it marks a decisive regulatory shift from case-by-case litigation to systematic compensation under FCA rules.
- Which agreements and periods are covered?
The scheme would apply to regulated motor-finance agreements entered into between 6 April 2007 and 1 November 2024, where a broker or dealer received commission.
This encompasses almost two decades of lending — from the start of the unfair relationship provisions of the Consumer Credit Act 1974 to a date one week after the handing down of the Court of Appeal judgment in Johnson v FirstRand Bank Limited.
- What types of commission arrangements are in scope?
The FCA identifies three categories of potentially unfair arrangements:
- Discretionary commission arrangements (DCAs): where brokers could vary the customer’s interest rate and increase their commission
- High-commission arrangements: where the commission made up a large proportion of the overall credit cost
- Tied arrangements: where brokers were incentivised to place finance with a specific lender.
Each may create an unfair relationship under section 140A of the Consumer Credit Act 1974 – the same legal basis as in the Supreme Court’s Hopcraft ruling.
- Who might be entitled to compensation?
Consumers whose finance agreements contained these types of commission structures could be eligible for automatic redress.
The FCA estimates that up to 14.2 million agreements may be affected, with an average payout of around £700 per customer.
This would make it one of the most extensive redress exercises ever undertaken by a UK financial regulator.
- How will compensation be calculated?
The FCA is proposing to adopt a method which balances the Supreme Court’s approach of awarding the full commission paid plus interest at a commercial rate and evidence of consumer loss, to provide fairness and consistency. Two methods are under consultation:
- Individual-case calculation – based on the actual overpayment of interest due to commission; and
- Average-loss approach – applying a standardised figure based on what the consumer has overpaid, or lost, and the commission paid, plus interest.
The FCA favours the average-loss methodology to allow quicker, large-scale redress without requiring full reconstruction of every agreement. However, where individual consumers cases closely align with the facts in Johnson, it is proposed that they will receive the full commission plus interest under the scheme.
- How does the scheme interact with court claims or the Financial Ombudsman Service (FOS)?
Customers who have already received a FOS decision or court judgment about their finance agreement will generally be excluded. However, ongoing cases may be paused while the FCA finalises the scheme rules, to avoid inconsistent outcomes.
Barristers and solicitors should therefore advise clients carefully on timing and procedural strategy, particularly for claims in progress.
- What should lenders and brokers do now?
The FCA expects proactive preparation. Firms should begin to:
- Identify and map potentially affected agreements
- Retain evidence of commission arrangements and rate-setting practices
- Review customer-communication processes
- Prepare to submit consultation responses by the deadline.
The FCA’s paper makes clear that early engagement will be viewed favourably when assessing firms’ later conduct.
- What are the proposed time limits and complaint deadlines under the scheme?
The FCA’s consultation paper proposes clear timeframes for how lenders should handle existing and potential complaints once the redress scheme begins:
- Consumers who have already complained (before the scheme starts) will be contacted by their lender within three months of the scheme’s launch.
They will be automatically included in the scheme unless they opt out. Once a consumer opts out, they cannot opt back in. - Consumers who have not yet complained will be contacted within six months of the scheme’s start date, where lenders can identify them, and asked whether they wish to opt in.
- Consumers who are not contacted (for example, where a lender no longer holds contact details) will be able to request a review at any time within one year of the scheme start date.
The FCA also intends to run a national advertising campaign to raise awareness of the scheme and ensure eligible consumers know how to participate.
For advisers, these timing rules are crucial: missing the one-year window could permanently bar a claim under the FCA’s framework, even where an unfair relationship might otherwise exist.
- What are the key milestones?
- Consultation open: until 18 November 2025
- FCA review of responses: late 2025
- Final rules expected: early 2026
- Implementation phase: likely throughout 2026
Given the potential impact, both consumer and industry representatives are expected to submit detailed feedback.
- What role can barristers play in this process?
Barristers may assist at several levels:
- For lenders and brokers: analysing exposure, advising on compliance and internal reviews, and assisting with regulatory submissions
- For consumers and solicitors: interpreting scheme eligibility, advising on litigation strategy, and appearing in test-case hearings or appeals.
Specialist advocacy and regulatory advice will be essential to manage risk and ensure procedural fairness as the FCA’s proposals evolve.
The FCA’s CP 25/27 proposals mark a watershed moment for the UK motor-finance sector.
If implemented, they could reshape redress mechanisms and establish a template for future mass-compensation schemes.
8PP will continue to monitor the consultation and provide analysis as it develops.
For further commentary, or to discuss implications for your clients, please contact our clerking team via clerks@8pp.co.uk or 015 245 9292 and follow our forthcoming updates on CP 25/27 and the Motor Finance Redress Scheme.
