Redress schemes, BNPL regulation, and what it means for lenders and brokers
As part of the FCA’s ongoing efforts to strengthen consumer protection, major FCA updates have been announced this month impacting motor finance providers and Buy Now, Pay Later (BNPL) firms. These developments signal a significant regulatory shift that will impact lenders, brokers, and credit intermediaries across the UK.
At My Compliance Consultant, we’re breaking down the key FCA updates and what they mean for your firm.
Motor Finance Redress Scheme Takes Shape
The FCA has proposed a redress scheme targeting mis-sold car loans involving discretionary commission arrangements (DCAs). These were commonly used by brokers to increase interest rates without adequately informing consumers, sometimes dating as far back as 2007.
Key Details:
- Individual payouts could reach up to £950, with total compensation estimated between £9 billion and £18 billion.
- A formal consultation is expected by early October 2025.
- Compensation payments may begin in 2026.
- The FCA urges consumers to avoid claims-management firms and instead lodge complaints directly with their finance provider or through the Financial Ombudsman Service.
Why It Matters:
Firms involved in motor finance especially those historically using DCA models will need to prepare for retrospective reviews, potential financial liabilities, and a likely surge in complaints or queries from affected customers.
BNPL Services to Fall Under FCA Regulation
The FCA is also preparing to bring Buy Now, Pay Later (BNPL) providers like Klarna and Clearpay under its regulatory framework, with rules expected to come into force from July 2026.
What’s Changing:
- Affordability checks will be mandatory even for purchases under £50.
- Providers must clearly disclose repayment terms and offer support for customers in financial difficulty.
- Consumers will gain access to:
- The Financial Ombudsman Service
- Section 75 protections under the Consumer Credit Act
The proposals are currently open for public consultation until 26 September 2025, and signal a move toward greater accountability and consumer safeguards in the fast-growing BNPL space.
What This Means for the Industry
For Consumers:
- Better transparency and support across credit products
- Stronger protection from mis-selling and unaffordable debt
For Lenders, Brokers & Credit Firms:
- A need to reassess compliance frameworks, especially regarding past commission models and credit assessments
- Prepare operationally for regulatory changes, new disclosures, and potential refund scenarios
- Ensure clear communication with customers and internal teams
Key Dates to Watch:
- 26 September 2025: BNPL regulation consultation closes
- Early October 2025: Formal consultation on the motor finance redress scheme expected
- Mid-2026: BNPL rules come into force; redress payouts begin
Final Thoughts
The FCA’s latest moves reflect a firm commitment to consumer fairness, transparency and stronger oversight in a rapidly evolving credit market. Whether you’re a lender, broker, or compliance officer, staying ahead of these changes is not optional, it’s a strategic necessity.
Need help preparing your firm for these FCA reforms?
Contact us today for tailored advice on consumer credit compliance, regulatory audits, and FCA reporting obligations.
