FCA publishes final rules for Motor Finance Redress Scheme – what’s changed, what stays the same, and what firms should do now?

Following its October 2025 consultation on an industry-wide motor finance consumer redress scheme (the Consultation), the Financial Conduct Authority (FCA) has confirmed its final Motor Finance Redress Scheme (the Scheme) and issued Policy Statement PS26/3¹ setting out the final rules. This update builds on our earlier alert: “FCA unveils landmark Motor Finance Redress Scheme”, which summarised the Consultation proposals when first published. 

The FCA received over 1,000 Consultation responses and engaged extensively with consumer groups, firms, manufacturers, investors and industry bodies, but reported materially conflicting feedback on several key Scheme design points. In broad terms, consumer groups argued that redress should go further, while many firms challenged aspects of the methodology, in particular on the basis that it risked compensating consumers beyond any demonstrable loss.

In response, the FCA states that it has amended the Scheme to balance competing objectives, including simplicity and cost-effectiveness, comprehensiveness and fairness, with a view to delivering consistent, orderly and cost effective redress at scale, while tightening eligibility so that only customers who were genuinely treated unfairly receive compensation. 

In this article, we examine the key aspects of the final Scheme rules, the principal changes from the Consultation, and the immediate steps affected firms should be taking now, including governance, data readiness, communications planning and “captive/visible links” evidence strategies.

Quick recap: what the FCA is addressing

The Scheme targets historic motor finance agreements where customers may have been treated unfairly due to inadequate disclosure of key commercial arrangements between lenders and brokers (typically dealers). 

The FCA is proceeding via a mandatory, industry-wide approach to avoid the higher costs, delays and inconsistent outcomes that would arise if issues were left to individual complaints, FOS referrals and litigation. 

Scope and structure: Time period remains broad – but delivery is split in two

The FCA has confirmed that motor finance agreements between 6 April 2007 and 1 November 2024 (the Period) where commission was paid by the lender to the broker will be considered for compensation. If the Scheme did not cover relevant agreements going back to 2007, the FCA contends that complaints would have to be dealt with by firms, through the Financial Ombudsman Service (FOS) or the Courts, resulting in much higher administrative and legal costs for firms and consumers, lengthy delays and uncertain outcomes for all involved. 

However, reflecting consultation feedback questioning powers and operational feasibility for the earlier years, the FCA will implement two parallel schemes:

• Scheme 1: 6 April 2007 – 31 March 2014; and
• Scheme 2: 1 April 2014 – 1 November 2024

Why it matters: If the pre 2014 scheme faces legal challenge, the FCA intends that the post 2014 scheme should still proceed without delay. 

Eligibility tightened: what triggers scheme consideration (and the new carve-outs)

The FCA has tightened eligibility so that only consumers who were not told details of at least one of the three arrangements below will be considered for compensation: 

1. Discretionary Commission Arrangements (DCAs) (whereby the broker had discretion to adjust the interest rate offered to a customer to earn a higher commission)
2. High commission arrangements – now defined as at least 39% of the total cost of credit and 10% of the loan (a modest uplift from the Consultation threshold of at least 35% of the total cost of credit)
3. Contractual ties between a lender and a broker (usually the dealer) that gave a lender exclusivity or a right of first refusal, subject to the “visible links” exception where the lender can prove there were visible links between the manufacturer and dealer (see below)

(together In-Scope Arrangements).

Key exclusions and exceptions (important operationally)

The FCA has introduced (or confirmed) several bright-line exclusions, including:

• Minimal commission: agreements are excluded where commission was £120 or less (before 1 April 2014) or £150 or less (from 1 April 2014). Commission amounts below those levels are, in the FCA’s view, unlikely to have influenced the consumer’s decision or broker’s behaviour
• Zero interest: borrowers not charged interest are excluded
• DCA not used: where a DCA existed but was not used to earn additional commission
• Lender can prove it was fair not to disclose the relevant In-Scope Arrangements or the consumer did not suffer loss: this includes if a tie wasn’t operated in practice or no better deal was available
• Prior resolution: consumers who have already received final outcomes via FOS, Court determination, or accepted redress are excluded from the Scheme
• Very high-value loans: loans above a threshold (higher than 99.5% of loans that year) which the FCA considers unsuitable for a mass redress process (customers can still complain to the firm/FOS)

Limitation periods 

Consumers generally have six years from the end of their agreement to bring a claim. However, the FCA has made clear that period is likely to be extended where information about the commission arrangements was deliberately concealed, and does not start to run until the consumer could reasonably have discovered it. In practice, the FCA expects that firms will not routinely be able to rely on cases being out of time given how poor disclosure was during the Period. 

However, firms may exclude cases only involving high commission that ended before 26 March 2020 if they can show the fact commission was payable was clearly and prominently disclosed (even if the amount was not). Where firms apply this exclusion, they must explain why and the consumer can challenge it at FOS.

Captive finance arms & “white label” / manufacturer-linked models: the visible links exception

A particularly important change for captive finance and manufacturer aligned distribution models is the FCA’s new position that a contractual tie alone will not trigger compensation where the lender can prove there were “visible links” with a manufacturer and dealer. 

Practical takeaway for captives / brand linked lenders: this shifts focus to evidencing the customer-facing visibility of the lender–manufacturer–dealer connection (e.g., branding, documentation, showroom materials, digital journeys and disclosures). The tie may still matter, but it is no longer automatically sufficient to trigger compensation where visible links can be proven. 

This will be a key workstream for firms operating:

• captive finance arms of OEMs;
• branded dealer networks; and
• certain “white label” arrangements where the lender’s role may (or may not) have been apparent to consumers at point of sale

Redress methodology: Johnson-like cases vs the “hybrid remedy”

The FCA has confirmed two principal redress approaches:

• “Johnson-like” cases: around 90,000 consumers whose cases align closely to Johnson will receive redress of all commission plus interest. These are defined as cases involving undisclosed contractual ties and/or DCA and very high commission of at least 50% of the total cost of credit and 22.5% of the loan
• All other cases: the “hybrid remedy” - for all other eligible cases, consumers receive the average of:
  • the estimated loss (based on FCA economic analysis of APR differences); and
  • the commission paid, plus interest

Different APR adjustments pre and post 2014

To reflect data limitations and the FCA’s view of greater harm in earlier years, the FCA applies:

• an APR adjustment of 17% for agreements from 1 April 2014 (Scheme 2 cases); and
• an APR adjustment of 21% for pre 2014 (Scheme 1) cases

New capping to avoid “betterment”

The FCA emphasises consumers should not be put in a better position than if treated fairly, so in approximately 1 in 3 hybrid cases, compensation will be capped (including caps linked to commission and total cost of credit). 

For consumers 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 to only 5% of the market at the time, excluding 0% APR deals; or
• the actual cost of credit, calculated on a simpler basis which 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

Interest approach updated (and now includes a floor)

Interest is paid as simple interest based on the annual average Bank of England base rate per year + 1%, with a 3% minimum floor per year. The FCA has also removed the ability for consumers to challenge the interest rate applied under the Scheme. 

How the Scheme will operate: timelines, communications and consumer journey

1. Implementation period (staggered): The FCA has introduced a short implementation window:
   • • up to 30 June 2026 for loans taken out from 1 April 2014, and
     • up to 31 August 2026 for loans agreed earlier
2. Faster outcomes for those who already complained: for consumers who have already complained (or complain before the end of the relevant implementation period), lenders must notify consumers within 3 months after implementation ends whether compensation is due and how much
3. Targeted communications (no blanket mail out - a major cost-saving change): firms only need to contact consumers who haven’t complained if they are potentially owed money, or are timed out of the Scheme - instead of contacting everyone. Firms have 6 months from the end of the relevant implementation period to do so, and consumers then have 6 months to respond if they wish to join
4. Final date for consumers to complain (if not contacted): consumers who are not contacted can still complain to their lender by 31 August 2027
5. Communication channels & fraud risk: the FCA confirms lenders can use a range of communication channels (recorded delivery not required) provided there are safeguards to prevent fraud

Scale and expected cost: updated FCA estimates

Following the tighter eligibility and streamlined approach, the FCA now estimates:

• 12.1m agreements eligible (down from 14.2m consultation estimate),
• £7.5bn in redress at 75% uptake (down from £8.2bn consultation estimate); and 
• £9.1bn total bill including admin/operational costs (down from £11bn)

Supervision and governance: heightened accountability

The FCA has established a dedicated supervisory team and will require senior manager attestations for their firm’s overall oversight and delivery of the Scheme. Firms should expect active supervision, regular reporting, and potential enforcement where delivery falls short. 

Immediate next steps for firms (practical checklist)

Motor finance lenders, captives and affected brokers should be undertaking the following immediate steps:

A. Scheme mobilisation and governance (weeks 1–2)

• Appoint a Scheme programme owner, confirm Senior Management Function accountability and prepare for required attestations
• Establish steering committees covering legal, complaints, operations, data, finance, conduct risk, communications and fraud

B. Eligibility logic build (weeks 1–6)

• Implement rules-based triage for: 
  • DCA presence and use
  • high commission threshold (39%/10%)
  • contractual ties and the visible links exception
  • £120/£150 de minimis
  • 0% APR exclusions
• Define approach for “fair” exceptions (e.g., tie not operated; no better deal available)

C. Captive / manufacturer-linked evidence pack (priority workstream)

• For captive finance arms and brand-linked lenders: build a documented “visible links” evidence library (consumer-facing branding and disclosures over time; dealer materials; journeys; T&Cs; web screenshots)

D. Redress methodology governance and assurance (weeks 2–10)

• Ensure internal governance is in place around the redress methodology (including “Johnson-like” categorisation, hybrid remedy inputs, APR adjustments, capping logic and interest), with clear audit trails and sign-off
• Review contractual and oversight arrangements with any third party administrators or technology providers supporting Scheme delivery, including allocation of responsibility, liability, complaints handling interfaces and data protection

E. Customer communications, fraud controls and ops capacity (weeks 4–12)

• Design communications for: complainants (3 month window), and non complainants to be contacted (6 month window)
• Implement multi-channel outreach with fraud safeguards (verification, secure portals, call scripts, phishing warnings)

F. Complaints and FOS strategy

• Align complaint handling rules in DISP with Scheme rules and ensure teams can explain: 
  • why a customer is excluded (e.g., de minimis / 0% APR / visible links tie carve-out)
  • the pathway to FOS review where permitted under the Scheme

"Whilst the FCA’s final rules have reduced the risk of financial exposure for automotive retailers what remains for dealers is a significant administrative burden in supporting lenders with the redress disclosure requirement”. Steve Freeman, Automotive and Transport Lead. MHA.

How Freeths can help

We can advise lenders, captive finance providers, brokers and other industry participants on the legal, regulatory and strategic implications of the Scheme, including:

• scheme interpretation, governance structures and senior management accountability
• legal analysis of eligibility criteria and risk exposure under the final rules
• advising captive finance arms on evidencing “visible links” and structuring defensible disclosure strategies
• reviewing customer communications for legal and regulatory risk, including fraud and impersonation considerations
• oversight of third party administrators, claims handlers and technology providers from a contractual, regulatory and liability perspective

For tailored advice or to discuss how Freeths can assist your firm, please contact Sushil Kuner, Partner and National Head of Financial Services Regulation or Richard Coates, Partner and Head of Automotive. 

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[1] PS26/3 – Motor Finance Consumer Redress Scheme (PDF)