Motor Finance Redress Scheme: FCA confirms the rules – now the real work begins

With the publication of PS26/3, the Financial Conduct Authority (FCA) has finally drawn a firm line under months of consultation and speculation around the motor finance redress scheme. What was once a broad, potentially unwieldy intervention has been sharpened into something more targeted, more structured—and, crucially, more operationally demanding.

For lenders, brokers and dealer networks, this is not the end of the story. It is the start of a complex delivery phase where operational readiness will define success. And while dealers may not be directly on the regulatory hook, they are very much in the frame.

We have put together a table comparing the initial consultation proposal to what has been announced in the final scheme which you can access here. 

A narrower scheme – but still a large one

The headline figure has shifted: 12.1 million agreements are now in scope, down from the originally projected 14.2 million. That ~15% reduction reflects a deliberate effort by the FCA to exclude marginal or low-risk cases through tighter definitions and thresholds.

But let’s be clear—this remains one of the largest consumer redress exercises the UK has seen in financial services. The scale alone means that even a “refined” scheme will generate significant claims volumes, operational strain, and reputational exposure.

The FCA has prioritised proportionality. The challenge for firms will be translating that principle into consistent, defensible outcomes at scale.

Drawing the line: what counts as “material”?

At the heart of the scheme lies a critical recalibration: the definition of “material commission arrangements.”

Gone is the broad-brush approach. In its place, a more precise test:

• Commission must be undisclosed and material
• “High commission” is now defined as:
• ≥39% of total cost of credit, and
• ≥10% of the loan amount

This matters. It removes a significant number of borderline cases and focuses attention on genuinely distortionary structures—particularly those involving discretionary commission arrangements (DCAs).

For firms, this clarity is welcome. But it also raises the evidential bar. The question is no longer whether commission existed, but whether it meets a defined threshold—and whether it was properly disclosed.

De minimis thresholds: cutting out the noise

The introduction of de minimis thresholds is another major shift:

• Pre-2014 agreements: commission must exceed £120
• Post-2014 agreements: commission must exceed £150

This is a pragmatic move. It strips out trivial cases and reduces administrative burden—particularly important given the volume of agreements involved.

However, firms should not assume this eliminates complexity. Applying these thresholds consistently across historic portfolios will still require robust data mapping and reconciliation, particularly where records are incomplete.

Two tiers of redress: precision over breadth

The FCA has settled on a two-tier redress model, designed to distinguish between the most egregious cases and the broader population.

1. “Johnson-type” cases (full redress)

Approximately 90,000 agreements fall into this category.

To qualify, cases must involve:

• An undisclosed contractual tie and/or DCA, and
• Very high commission:
• ≥50% of total cost of credit
• ≥22.5% of the loan amount

These consumers will receive full commission refunds plus interest.

The narrowness of this category is deliberate. It ensures that full redress is reserved for the clearest instances of unfairness, limiting the risk of overcompensation.

2. Hybrid remedy (the majority of cases)

For all other in-scope agreements, the FCA has adopted a hybrid approach:

• Consumers receive the average of:
• Estimated financial loss, and
• Commission paid
• Plus interest

Estimated loss is calculated using APR differentials between DCA and flat-fee models.

This methodology aims to balance fairness with practicality. It avoids the need for fully bespoke calculations while still grounding redress in economic detriment.

APR adjustments: data-driven (with caveats)

A key component of the hybrid remedy is the application of standardised APR adjustments:

• Post-2014 agreements: 17%
• Pre-2014 agreements: 21%

The higher pre-2014 adjustment reflects:

• More aggressive DCA practices
• Larger APR spreads
• Less reliable underlying data

The FCA has effectively acknowledged the limitations of historic datasets while still pushing forward with a consistent methodology. For firms, this reinforces the importance of documenting assumptions and evidencing methodology – particularly where data gaps exist.

Exclusions that matter

Several categories have been explicitly excluded, significantly reducing scope:

• 0% APR agreements
• Agreements in the lowest 5% of APRs (excluding 0%)
• Certain low commission arrangements (unless fairness cannot be demonstrated)
• Exclusivity arrangements where manufacturer–dealer relationships were transparent (e.g. captive finance models)

These exclusions are not just technical – they materially reduce exposure, particularly for franchised dealer networks and OEM-aligned finance structures.

Redress caps and average compensation

The FCA has introduced caps on redress in approximately one-third of cases to prevent overcompensation.

The result:

• Average compensation: ~£829 per agreement
• Total scheme cost: ~£9.1bn
• £7.5bn in redress
• £1.6bn in operational costs

This is lower than earlier projections, but still substantial.

For firms, the message is clear: cost containment has been built into the scheme design—but delivery risk remains firmly in play.

Operational reality: this is where it gets difficult

If the policy phase was about legal clarity, the implementation phase is about execution.

The FCA has made several key decisions to ease operational pressure:

• Firms only need to contact:

Complainants, and

Customers owed redress

• No requirement for recorded delivery
• Complaint handling resumes under structured timelines

Lenders must now:

• Issue decisions within 3 months of identifying redress
• Meet hard deadlines:
• 30 June 2026 (post-2014 cases)
• 31 August 2026 (pre-2014 cases)

These are not soft targets. They are fixed milestones.

And behind them sits a more assertive supervisory stance:

• Dedicated FCA oversight team
• Senior Manager Function (SMF) attestations
• Coordination with the SRA, ASA and ICO

This is not just a remediation exercise—it is a multi-agency compliance event.

Dealers: not liable, but not untouched

The FCA has been clear: this is not a dealer-led redress scheme.

Dealers are not directly responsible for compensation. But that does not mean they are insulated.

Lenders are expected to:

• Review historic dealer practices
• Assess commission models
• Revisit contractual indemnities

For dealer networks, the risks are therefore:

• Commercial (contractual exposure to lenders)
• Operational (handling increased customer contact)
• Reputational (association with historic practices)

In short: indirect, but material.

Data, evidence and the art of reconstruction

One of the more pragmatic aspects of PS26/3 is the FCA’s approach to data gaps.

Firms are permitted to use:

• Reasonable assumptions
• Proxy data where necessary

But this is not a free pass.

Lenders must still:

• Evidence the basis for assumptions
• Demonstrate fairness, particularly where claims are excluded
• Maintain audit trails capable of withstanding scrutiny

Given the age of some agreements, this will be one of the most challenging aspects of delivery.

The bigger picture: claims, conduct and credibility

Beyond the technical detail, the motor finance redress scheme sits within a broader landscape:

• Heightened consumer awareness
• Increased activity from claims management companies (CMCs)
• Ongoing scrutiny of historic sales practices

The FCA’s coordination with the SRA, ASA and ICO signals a clear intention to police behaviour across the ecosystem, not just within regulated firms.

For lenders and dealers alike, this is as much about conduct and credibility as it is about compliance.

Final thought: readiness is everything

The FCA has delivered what many in the industry were calling for: clarity, structure and proportionality.

But clarity does not simplify execution.

With millions of agreements in scope, fixed deadlines, and enhanced supervisory scrutiny, the success of the motor finance redress scheme will hinge on one thing:

Operational readiness.

That means:

• Scalable processes
• Defensible methodologies
• Clear governance
• Effective customer communication

Because while the rules are now settled, the real test is just beginning.

And in the world of motor finance redress scheme claims, getting it wrong is not just a compliance issue – it is a business-critical risk.