Motor finance redress: the FCA’s final rules on the industry-wide redress scheme

Motor finance providers will be obliged to review their historical lending books to identify all agreements that featured commission structures that fall within the scope of the scheme. Firms will then need to assess redress for customers using the FCA’s mandated framework for calculating compensation. 

Yes. The scheme requires motor finance providers to take proactive steps to identify and contact affected customers, rather than waiting for customers to bring complaints. This obligation places a significant operational burden on lenders, who must ensure that they have up-to-date contact details for potentially large numbers of former customers. Firms should review and, where necessary, supplement their customer contact records in anticipation of the communication requirements.

The FCA has confirmed, however, that lenders will only have to contact complainants or those due compensation and recorded delivery will not be required. 
 

The scheme covers motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker. 

The FCA is implementing two schemes: 

• one from 6 April 2007 - 31 March 2014; and

• one from 1 April 2014 - 1 November 2024. 

The rationale for the separate schemes is to mitigate the risk of the scheme for the earlier period (prior to consumer credit being regulated by the FCA) becoming subject to legal challenge and to ensure that the scheme for the later period would not be disrupted in these circumstances. The FCA’s position remains that its powers enable it to introduce a scheme covering the full period. 
 

Consumers will only be eligible for compensation where the relationship is presumed unfair. A relationship will be presumed unfair where it involves inadequate disclosure of one or more of the following:

• a discretionary commission arrangement (DCA) – where the broker could adjust the interest rate offered to a customer to obtain a higher commission;

• a high commission arrangement (39% of the total cost of credit and 10% of the loan (rather than 35%/10% as originally consulted on); or

• contractual ties that gave a firm exclusivity or a right of first refusal, except where the lender can prove there were visible links between the lender, manufacturer, and franchised dealer (a narrowing of the eligibility criteria compared with the original proposals).

There will be some exceptions, with cases considered fair, if:

• the commission was £120 or less for agreements beginning before 1 April 2014 and £150 or less after that date;

• the borrower wasn’t charged interest;

• the DCA wasn’t used to earn additional commission; or

• the lender can prove it was fair not to disclose one of the arrangements above or that the consumer did not suffer any loss. This includes if a tie wasn’t operated in practice or no better deal was available.

Additional exclusions from the scheme will apply where: 

• consumers have had their complaint considered by the Financial Ombudsman, had their claim determined by a court; or accepted redress; 

• claims are for high value loans (higher than 99.5% of other loans that year); or

• for cases only involving high commission and ending before 26 March 2020, the lender can show that the fact commission was payable was clearly and prominently disclosed. 

   

Whilst the FCA has narrowed the eligibility criteria for the redress scheme, its final rules on the redress calculation methodology result in a higher average redress payment per agreement of £830 (compared with £695 under its consultation proposals).

The FCA prescribes a defined methodology for calculating the redress owed to affected customers. The methodology is designed to assess the difference between what the customer actually paid under the agreement and what they would have paid had the broker's commission been set at a level that did not involve the exercise of discretion to increase the interest rate. 

In summary: 

• for cases involving an undisclosed contractual tie and/or DCA, and commission of at least 50% of the total cost of credit and 22.5% of the loan, consumers will receive redress of commission plus interest (see question 6 below). The FCA expects the number of consumers falling into this category to be low.

• for all other cases, consumers will receive the average of ‘estimated loss’ and the commission paid, plus interest. This will be known as the ‘hybrid remedy’. The ‘estimated loss’ is based on economic analysis that shows there was a difference in the APR on DCA loans compared to those with flat fee arrangements. The FCA estimates average loss to be equivalent to an APR adjustment of 17% for loans from 1 April 2014. For loans prior to 1 April 2014, the APR adjustment is 21%. 

The FCA has made it clear that consumers should not be compensated more than if they had been treated fairly or than those who suffered the most unfairness. Compensation will therefore be capped under the hybrid remedy at the lowest of:

• 90% of commission plus interest;

• the total cost of credit, adjusted to account for a minimal cost offered to only 5% of the market at the time, excluding 0% APR deals; or

• the actual cost of credit, calculated on a simpler basis. This may be the lower figure if the adjusted cost of credit can’t be accurately calculated, for example, if the lender doesn’t have the payment schedule.

Simple interest will be paid on redress, based on the annual average Bank of England base rate per year plus 1% from the date of overpayment to the date compensation is paid. The FCA has introduced a floor so the minimum interest consumers receive is 3% in any year.

The FCA has provided for short implementation periods and redress timings which vary depending on when the finance was entered into and whether the consumer has complained. Consumers who have already complained or who complain before the end of the relevant implementation period will be compensated sooner. The implementation periods are to enable providers to prepare for the scheme. Providers will have to confirm redress to customers within a set period of time following the end of the implementation period. 

The implementation periods are: 

• 30 June 2026 for motor finance agreements beginning between 1 April 2014 and 1 November 2024; and

• 31 August 2026 for motor finance agreements beginning 6 April 2007 to 31 March 2014. 

Where consumers complain before the end of the implementation period, providers will have 3 months from the end of the implementation period to let them know whether they’re owed compensation and how much.

Providers will only have to contact people who haven’t complained if they are potentially owed money or those who are timed out of the scheme. They will have 6 months from the end of the relevant implementation period to do so. Consumers must respond within 6 months if they wish to join the scheme. Consumers who are not contacted can still complain to their provider by 31 August 2027. Where a consumer joins the scheme, the provider must then within 3 months confirm if the consumer is owed money and how much. 

For all consumers (whether they instigated the complaint or opted to join the scheme following an invitation from the provider), they will have one month to respond to the provider to either accept or challenge the redress offer. Redress must then be paid within one month. 
 

Where a provider determines that no redress is due and the arrangements were deemed fair under the scheme, the consumer may ask the Financial Ombudsman to review whether the scheme rules were followed and could still pursue their claim through the courts.
 

The redress scheme rules provide that where the original firm is insolvent, the ‘successor’ (defined as an entity that has taken legal title) is required to step into the shoes of the original lender and implement the redress scheme. Where there are multiple successors, the liability sits with the firm who became the successor first in time. 

From a general policy perspective, the FCA has stated that anyone who has obtained ‘rights’ under a loan will be responsible for administering the scheme where the original lender is insolvent or no longer exists. The FCA’s primary goal is to ensure that customers are paid the redress they are owed and it is therefore expected that the FCA will look through corporate structures to any persons who have obtained rights under the relevant loans to top up any shortfall or, if necessary, to implement the scheme.
 

The FCA has made clear that it expects full and timely compliance with the requirements of the redress scheme and has set out a detailed supervisory strategy for compliance with the scheme. Providers who fail to meet their obligations under the scheme may face supervisory and/or enforcement action. 

Providers should expect to engage with the FCA and report on their redress processes. In particular, they will be required to provide a scheme implementation plan and delivery forecast confirming prescribed details and metrics on their approach to redress. Providers will also need to provide an attestation from a suitable Senior Manager on the firm’s preparatory steps for the scheme, confirming the firm has robust processes and systems and controls in place to administer redress.
 

Key to delivering a compliant redress scheme will be ensuring appropriate governance and oversight arrangements. This includes clear accountability at senior management level, adequate resourcing of the redress programme, and effective quality assurance processes to ensure that redress calculations are accurate and that customer communications are fair, clear, and not misleading. 

Steps that firms should be taking now include:

• conducting a thorough review of their historical commission arrangements;

• scoping the population of affected customers;

• investing in the systems and processes needed to perform redress calculations at scale;

• ensuring that they have adequate internal and external resource to implement the scheme;

• budgeting appropriately for the scheme; and

• engaging with legal and compliance advisers to ensure that their approach is aligned with the requirements of the scheme.

Given the long time period within scope of redress, a particular issue faced by providers will be their ability to identify in-scope agreements within the relevant period. Where records are incomplete or have been lost, providers will need to consider how to address gaps in their data and should engage with the FCA's guidance on how to treat such cases within the redress framework.
 

At the time of writing (April 2026), the pro-consumer organisation, Consumer Voice, has announced that it will challenge the FCA’s redress scheme. The precise nature and scope of the challenge is currently unknown and the application will require the court’s permission to proceed. Consumer Voice has said that it is not seeking to delay the scheme (which would arguably undermine its intention of securing more favourable outcomes for consumers) and we would expect the court to expedite its consideration of the application to avoid unnecessary delay.