FCA finalises Motor Finance Consumer Redress Scheme

On 30 March 2026, the FCA published its policy statement (PS26/3) on the Motor Finance Consumer Redress Scheme (the "Scheme"). The Scheme is intended to address historic failings in motor finance agreements which, in the FCA's view, created "unfair relationships" contrary to Consumer Credit Act 1974.

The Scheme is free for consumers to use, with the aim being to ensure that consumers receive redress for the breaches consistently and efficiently. The ultimate goal set out by the FCA is to return £7.5 billion to consumers, with claims paid out in 2026 and the majority settled by the end of 2027. Consumers who have already had their complaint considered by the Financial Ombudsman, had their claim determined by a court, or accepted redress will be excluded from the Scheme. In addition, claims for high-value loans (higher than 99.5% of other loans that year) will also be excluded from the Scheme.

Typically, consumers have six years from the end of their finance agreement to bring a legal claim under the Scheme. However, this period is likely to be extended where information about the commission arrangements was deliberately concealed, whilst the time limit does not begin to run until the consumer could have reasonably discovered it. The FCA has confirmed it does not anticipate that many firms will routinely find that claims are out of time to be considered in the Scheme, due to the severity of the poor disclosure at the time. Firms may rule consumers out of the Scheme as they consider them out of time, but must inform the consumer and provide a rationale, to which the consumer can object and raise this with the Financial Ombudsman.

We have set out below some key features of the Scheme and questions which will likely be raised in response to the FCA's policy statement.

What Does the Timeframe Look Like?

The Relevant Period

Any motor finance agreements entered into on or after 6 April 2007 will be considered for the Scheme. The Scheme has been split into two phases known as Scheme 1 and Scheme 2, due to concerns by the FCA that the earlier dates in Scheme 1 could be subject to legal challenge on the basis of the FCA not having the power to review up to the Scheme 1 starting date. This split therefore protects Scheme 2 consumers from delays if challenges are raised.

• Scheme 1: 6 April 2007 to 31 March 2014
• Scheme 2: 1 April 2014 to 1 November 2024

The Implementation Period

There will be an implementation period so that firms can prepare to contact consumers and meet the following deadlines:

• 30 June 2026 for Scheme 2 agreements; and
• 31 August 2026 for Scheme 1 agreements.

Consumers who have already filed a complaint, or who file a complaint before the end of the relevant implementation period, will be compensated sooner. Firms have three months from the end of the implementation period to let those who have complained know whether they are owed compensation, and will have six months from the end of the relevant implementation period to contact consumers who have not yet complained, if they are potentially owed money. Consumers must respond within six months if they wish to join the scheme, though consumers who have not been contacted but have concerns can still complain to their firm by 31 August 2027.

What Makes a Motor Finance Agreement Unfair to the Consumer?

Eligibility

The following types of agreements are in-scope of the Scheme:

• Discretionary commission arrangements ("DCA"): Where the broker could adjust the interest rate or key pricing terms offered to a customer to obtain a higher commission;
• High commission arrangements: Where commission met both of the following thresholds: (a) at least 39% of the total cost of credit; and (b) at least 10% of the loan amount; and
• Tied arrangements: Where the broker was restricted to offering finance from a particular lender, including rights of first refusal or equivalent rights of priority.

Exceptions

There are some exceptions to the above, with cases considered fair where:

• The commission was £120 or less for agreements under Scheme 1, and £150 or less for agreements under Scheme 2;
• The borrower was not charged interest (e.g., zero APR agreements);
• The DCA was not used to earn additional commission;
• The lender can prove that it was fair to not disclose one of the arrangements above or that the consumer did not suffer any loss. This includes if a tie was not operated in practice, or if no better deal was available;
• The persons who obtained rights under a motor finance agreement did so after the fixed period of the loan;
• The agreement falls into the top 0.5% of agreements by loan value, excluding where the vehicle has been modified for accessibility reasons due to the costliness of these modifications; and
• These are captive and white-label tied agreements with franchised dealers, where there is evidence that it was possible for the consumer to recognise the relationship between the lender and broker, through prominent branding, point-of-sale materials, and customer documentation.

How will Redress be Calculated?

Consumers whose cases involve an undisclosed contractual tie and/or DCA, in addition to a commission of at least 50% of the total cost of the credit and 22.5% of the loan, will receive redress of commission plus interest.

For all other cases, consumers will receive the average of the estimated loss and the commission paid, plus interest (the "hybrid remedy"). The APR adjustment for Scheme 1 cases has been set at 21%, and at 17% for Scheme 2.

In approximately one in three cases receiving the hybrid remedy, redress will be capped at the lowest of:

• 90% of commission plus interest;
• The total cost of credit, adjusted to account for a minimal cost offered only to 5% of the market at the time, excluding 0% APR deals; or
• The actual cost of credit, calculated on a simpler basis.

The caps ensure that consumers who receive the hybrid remedy are not compensated more than had they been treated fairly, or than those who suffered the most unfairness. 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 or the date the commission was paid to the date the compensation is paid. The minimum interest rate consumers receive for any year will be 3%, and consumers will not be able to challenge the rate they receive. The estimated average redress payment per agreement will be around £830.

What Should Firms be Doing Now?

It is recommended that firms begin a detailed review of their motor finance agreements for the relevant time period (i.e., 6 April 2007 to 1 November 2024), in order to begin gathering evidence and identifying any and all customers who may have been subject to unfair agreements and their contact details. Firms should consider customer needs in contacting customers, particularly vulnerable customers. Information regarding Scheme 1 arrangements may take longer to review due to the historic nature of the evidence, so firms should consider their resourcing to address the quantity and quality of their historic customer data. Firms should also review their previous policies, details of loan agreements and consider whether the motor finance agreements issued during the relevant period are at risk of falling into scope of the Scheme. It may also be worthwhile to review current internal policies and arrangements, taking preventative measures to ensure effective consumer protection in relation to motor finance agreements going forward.