FCA Confirms Motor Finance Redress Scheme: What You Need To Know About Timing And Eligibility

The Financial Conduct Authority (FCA) has now confirmed the details of its long‑anticipated redress scheme for motor finance commission arrangements. The announcement provides clarity on who may be entitled to compensation, how redress will be calculated and, crucially for firms, the key implementation and payment timelines.

Below, we highlight the most important points for lenders, brokers and other affected firms.

What is the background to the redress scheme?

Between 2007 and 2024, more than 30 million motor finance agreements were entered into in the UK, the majority involving commission payments from lenders to brokers, typically car dealers. This period coincided with the introduction of the "unfair relationship" provisions in the Consumer Credit Act 1974 (CCA) and the transfer of consumer credit complaints to the Financial Ombudsman Service (FOS).

Concerns about commission ‑ driven sales practices led the FCA to launch a market review in 2017, culminating in the ban on discretionary commission arrangements (DCAs) in January 2021. Complaints have since escalated sharply, with tens of thousands referred to the FOS, alongside a series of significant ombudsman decisions and court judgments examining the adequacy of commission disclosure and lender-broker relationships.

Against this backdrop, and following further scrutiny by the courts, the FCA undertook a wider review of historical commission practices. In October 2025, it published proposals for an industry-wide motor finance redress scheme, aimed at addressing widespread disclosure shortcomings and delivering fair, consistent outcomes for consumers in a structured and proportionate way. The FCA published, on 30 March 2026, its Policy Statement 26/3 setting out the details of redress scheme.

What contracts are within scope?

The scheme will apply to consumers that have entered into a motor finance agreement with an FCA-regulated firm, or a firm that previously held a licence from the Office of Fair Trading (OFT), and there must have been a commission arrangement connected to that agreement.

A 'motor finance agreement' is a regulated credit agreement that was used in whole or in part to finance the purchase or hire of a motor vehicle. These are most likely to be personal contract purchase (PCP), hire purchase (HP), or conditional sale agreements

It does not apply to regulated consumer hire agreements (including PCH agreements) on the basis that the unfair relationship provisions of the CCA do not apply to consumer hire agreements.

Who may be entitled to compensation?

Under the scheme, certain motor finance arrangements will be presumed to be unfair, unless the lender can rebut that presumption. This applies where there was inadequate disclosure of one or more of the following:

• DCAs – where brokers could adjust the interest rate offered to consumers in order to earn higher commission.
• High commission arrangements, defined as:
  • Commission representing 39% or more of the total cost of credit, and
  • 10% or more of the loan amount.
• Contractual ties giving exclusivity or rights of first refusal, unless the lender can demonstrate visible links between the lender, manufacturer and franchised dealer.

When will consumers not be entitled to compensation?

The presumption of unfairness will not apply in a number of defined circumstances, including where:

• Commission was £120 or less for agreements entered into before 1 April 2014, or £150 or less for agreements entered into after that date.
• The borrower was not charged interest.
• A DCAs existed but was not used to earn additional commission.
• The lender can show it was fair not to disclose the arrangement, or that the consumer suffered no loss (for example, where a tie was not operated in practice or no better deal was available).

Consumers will also be excluded if their complaint has already been:

• Determined by the Financial Ombudsman Service,
• Decided by a court, or
• Resolved through accepted redress.

Certain high‑value loans (above the 99.5th percentile for the relevant year) are also excluded.

How will compensation be calculated?

Most eligible consumers will receive a hybrid remedy, comprising:

• An average of estimated loss, and
• The commission paid, plus interest.

The loss element depends on when the agreement began:

• Before 1 April 2014: APR adjusted by 21%
• From 1 April 2014 onwards: APR adjusted by 17%

For hybrid remedies, redress will be capped at the lowest of:

• 90% of commission, plus interest;
• The total cost of credit, adjusted for a minimal market cost (excluding 0% APR deals);
• The actual cost of credit, calculated on a simpler basis where precise adjustment is not possible.

Where commission was exceptionally high (at least 50% of the total cost of credit and 22.5% of the loan), and involved a DCAs, a tie, or both, consumers will be entitled to full commission repayment plus interest, with no cap applied.

Who do firms need to contact?

Firms will be required to contact:

• Existing complainants;
• Consumers with relevant arrangements, unless a specific exception applies; and
• Consumers previously excluded due to civil limitation considerations.

Why are there two schemes?

One of the more interesting aspects of the proposed redress framework is the decision to split it into two separate schemes: one covering contracts entered into before 2014, and another for those agreed after that date.

This distinction is not arbitrary. Prior to 2014, consumer credit was governed by the CCA and overseen by the Office of Fair Trading. However, in 2014, responsibility for regulating consumer credit transferred to the FCA), and the activity itself became regulated under the Financial Services and Markets Act 2000 (FSMA).

This regulatory divide raises an important legal question: does the FCA actually have the authority to impose a statutory redress scheme on credit arrangements that pre-date its remit under FSMA.

The FCA's position is that it does have such authority. However, it has also acknowledged that this interpretation could be open to legal challenge.

To manage this uncertainty, the FCA has opted for a pragmatic solution - splitting the redress into two schemes. By doing so, it aims to limit the potential disruption that could arise if its powers over pre-2014 agreements were successfully challenged, while still progressing redress for more recent, clearly regulated contracts.

What are the obligations on brokers?

Alongside their ongoing obligation to comply with FCA requirements as authorised firms, brokers will also face specific duties under the proposed redress scheme.

In particular, brokers must respond to information requests from lenders within one month of receipt. These requests are intended to help lenders assess whether compensation is due to a customer, and if so, how much. Timely cooperation will therefore be essential to ensure the smooth operation of the scheme.

The FCA has also acknowledged a potential area of tension behind the scenes. In cases where a broker was responsible for failing to disclose key information, lenders may seek to recover losses from that broker.

However, this possibility sits outside the scope of the redress scheme itself. From the FCA's perspective, the priority is ensuring that consumers receive appropriate compensation. Any subsequent disputes or recovery actions between lenders and brokers are a separate matter and do not affect how the scheme operates.

Consumers who complain before the implementation period ends

Motor finance agreements beginning 6 April 2007 – 31 March 2014

• Implementation period ends: 31 August 2026
• Lender confirms redress entitlement: by 30 November 2026
• Consumer accepts or challenges: by 31 December 2026
• Redress paid: by January 2027

Motor finance agreements beginning 1 April 2014 – 1 November 2024

• Implementation period ends: 30 June 2026
• Lender confirms redress entitlement: by 30 September 2026
• Consumer accepts or challenges: by 31 October 2026
• Redress paid: by November 2026

Consumers who do not complain but have at least one relevant arrangement

Agreements beginning 6 April 2007 – 31 March 2014

• Lender invites consumer to opt in: by 28 February 2027
• Consumer opts in: by 31 August 2027
• Lender confirms redress: by 30 November 2027
• Redress paid: by January 2028

Agreements beginning 1 April 2014 – 1 November 2024

• Lender invites consumer to opt in: by 31 December 2026
• Consumer opts in: by 30 June 2027
• Lender confirms redress: by 30 September 2027
• Redress paid: by November 2027

Consumers who complain after the implementation period must be told whether they are owed money within three months of their complaint. Any consumer not contacted by a lender has until 31 August 2027 to make a claim.

What should firms be doing now?

The FCA's announcement provides welcome clarity, but it also creates significant operational and regulatory challenges for firms across the motor finance sector. Firms should now be reviewing:

• Historic commission structures and disclosure practices;
• Data availability and record‑keeping;
• Impact on the firm's finances;
• Customer contact strategies; and
• Resourcing plans to meet the FCA's strict deadlines.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.