Financial Conduct Authority launches £7.5bn UK motor finance redress scheme
Published on 1st April 2026
Firms face tight timeline to implement scheme covering nearly two decades of lending as risk of legal challenge looms
At a glance
The FCA will go ahead with its redress plans, now divided into two schemes to manage the higher risk of legal challenge for older agreements.
Some 12.1 million agreements are expected to be eligible, with a total bill to firms of £9.1 billion, after refinements to the FCA's rules post-consultation
Industry now has an implementation period to prepare, but timelines remain challenging – firms are expected to deliver a scheme implementation plan within six weeks.
The Financial Conduct Authority (FCA) has confirmed that it will go ahead with a redress scheme to compensate motor finance customers. The launch of this landmark scheme follows a consultation process in autumn last year.
The UK financial regulator expects the scheme to return £7.5 billion to consumers, down from an earlier estimate of £8.2 billion, with "nearly all" cases resolved by the end of 2027.
How will the scheme work?
The FCA will implement two separate schemes:
- Scheme 1 – covering agreements taken out between 6 April 2007 and 31 March 2014
- Scheme 2 – covering agreements taken out between 1 April 2014 to 1 November 2024
The two-part structure, introduced since the consultation, is intended to ensure that any legal challenge relating to the earlier period does not delay compensation for customers with later agreements.
Scheme 1 covers the period before the FCA took over responsibility for consumer credit regulation from the Office of Fair Trading. Some respondents to the consultation argued that the FCA therefore lacks power to include agreements from this period in the redress scheme.
Who is eligible?
An estimated 12.1 million agreements are expected to be eligible, down from an estimated 14.2 million at the time of the consultation proposals.
Consumers will only be considered for compensation if at least one of the three following arrangements was inadequately disclosed:
| Type of arrangement | Changes from consultation |
| A discretionary commission arrangement (DCA), where the broker could adjust the interest rate offered to a customer to obtain a higher commission | None |
| A high-commission arrangement | The threshold for high commission has increased to 39% of the total cost of credit and 10% of the loan amount – at the consultation stage, the threshold was 35% of the total cost of credit and 10% of the loan amount The FCA notes that this definition is "specific to the motor finance redress scheme" and is not intended to establish a benchmark for consumer credit markets more widely |
| Tied arrangements that gave a firm exclusivity or a right of first refusal | Tied arrangements are now excluded where the lender can prove there were visible links between the lender, manufacturer, and franchised dealer (i.e. a captive financier), or where a firm can demonstrate a tied arrangement was not operated in practice |
Where a case includes one or more of these arrangements, a lender may be able to prove that it was fair not to disclose it or that the consumer did not suffer any loss, although the regulator expects this to be rare in practice.
The FCA has introduced additional exceptions since the consultation, including the following:
- The commission was £120 or less (before 1 April 2014) or £150 or less (from 1 April 2014);
- The borrower was not charged interest (0% APR);
- High-value loans (the top 0.5% in value of loans that year), as being unsuitable for a mass redress scheme; and
- For agreements involving high commission only and ending before 26 March 2020 (approximately six years before publication of the final rules), the fact of commission being payable was disclosed clearly and prominently, even if the amount was not disclosed.
Consumers generally have six years to bring a claim, but that may be extended where information about commission or a tie was deliberately concealed. The FCA does not expect firms routinely to find cases out of time to be considered for the scheme (beyond – it seems agreements involving high commission ending before 26 March 2020 as above), given how poor disclosure was across the period in the regulator's view.
Consumers are also excluded if their complaint has already been considered by the Financial Ombudsman Service or settled by a court, or if they have already accepted redress.
How is redress calculated?
The FCA has made targeted changes to the redress calculation framework, and estimates the average redress payment per agreement will now be around £830, up from £695 under the consultation proposals.
For cases closely aligned with the Supreme Court's decision in Johnson – now characterised as involving an undisclosed contractual tie or DCA (in the consultation, cases involving a DCA were not included in this category), plus commission of at least 50% of the total cost of credit and 22.5% of the loan – consumers will receive the commission plus interest.
For all other cases, consumers will receive the average of the estimated loss (based, in effect, on an assumption that, if the commission had not been paid or had been disclosed, the interest rate applicable to the loan would have been lower) and the commission paid, plus interest (known as the hybrid remedy). Pre-1 April 2014 cases will now be subject to a 21% APR adjustment to reflect the assumed higher interest, with post-1 April 2014 cases still subject to a 17% APR adjustment as consulted on.
The regulator has also introduced a new cap on the hybrid remedy (but not on the "Johnson" remedy) at the lowest of:
- 90% of commission plus interest.
- The total cost of credit, adjusted to account for the cost of credit offered to 5% of the market at the time, excluding 0% APR deals. Borrowers who fall within that 5% will receive nil redress.
- The actual total cost of credit, calculated on a simpler basis.
As a result, around 64,000 agreements, where the APR was in the lowest 5% available at the time (excluding 0% deals), will attract no compensation.
Interest on redress payments remains at 1% over the base rate, with a new 3% floor added and no rounding applied. If a lender makes a late payment (more than a month after redress has been accepted), interest will accrue at 8%.
Implementation period
The FCA has introduced an implementation period for the scheme following industry feedback, with knock-on changes to the reporting required of firms.
The time firms have to prepare will vary depending on the scheme:
- Scheme 1 (agreements entered into between 6 April 2007 and 31 March 2014) – implementation period of five months, until 31 August 2026
- Scheme 2 (agreements entered into between 1 April 2014 and 1 November 2024) – implementation period of three months, until 30 June 2026
Firms must be ready to operate the scheme in full by the end of the relevant implementation period.
Firms must notify the FCA by 13 April whether they intend to use the implementation period for Scheme 1 or Scheme 2 or both, and provide the name and contact details of the senior manager responsible for scheme oversight.
Firms will need to submit a scheme implementation plan by 11 May, alongside the delivery forecast proposed in the consultation.
Osborne Clarke comment
The final scheme is likely to be met with disappointment by the industry. It arguably still reaches beyond the scope of the Supreme Court's decision in Johnson, including in how high commission is defined and in requiring only one of the three arrangements to be in existence for compensation to be triggered, carrying a risk of legal challenge. The FCA itself anticipates the possibility of challenge, particularly with regard to agreements which predate the regulator's assuming regulatory responsibility for consumer credit on 1 April 2014.
The final rules do reflect some accommodations of industry feedback. Having raised this issue in our consultation response, we welcome the FCA's acknowledgement of firms' right to exclude cases involving high commission-only agreements ending before 26 March 2020 where they can show that commission being payable was clearly and prominently disclosed, even if the amount was not disclosed. This approach takes into account limitation periods that would be applied by the courts.
From a practical perspective, while the drop in the overall bill and the introduction of an implementation period will be welcome, the timetable will nonetheless be tight for many lenders given the operational challenges in setting up and operating the scheme. The clock is now ticking on delivery of the new scheme implementation plans. Uncertainties in the rules remain – for example, around the impact on complaints made to the Financial Ombudsman Service. Any legal challenges are unlikely to disrupt the immediate implementation timeline, so firms will need to act now to make sure they are ready for the summer deadlines.
If you would like help understanding the impact of the redress scheme on your business, please contact our experts.
