Motor finance redress scheme:

Key developments and legal milestones

• January 2021: FCA bans Discretionary Commission Arrangements (DCAs)
• January 2024: FCA launches investigation into historic motor finance commission arrangements and pauses timelines for dealing with DCA complaints
• October 2024: Court of Appeal rules brokers must obtain informed consent for commissions and triggers Supreme Court appeals in cases of Hopcraft, Johnson and Wrench
• December 2024: FCA extends complaint pause to include non-DCA cases
• April 2025: Supreme Court hears appeal
• August 2025: Supreme Court confirms unfair commission arrangements in Johnson case
• October 2025: FCA publishes consultation on redress scheme (CP25/27)
• December 2025: Consultation closes 
• End of March 2026: Final Scheme Rules expected to be published
  
  

The proposed redress scheme

What is in-scope? 

As per CP25/27, the scheme applies to regulated motor finance agreements entered into between 6 April 2007 and 1 November 2024, where commission was paid by the lender to the broker. 

Consumers may be eligible for redress if they were not adequately informed of any of the following:

1. Discretionary Commission Arrangements (DCAs) – brokers could adjust interest rates to increase their commission.
2. High commission arrangements – commission exceeding 35% of the total cost of credit and 10% of the loan.
3. Exclusive contractual ties – brokers had near-exclusive relationships with lenders.
   
   

What is the redress? 

For some agreements, where undisclosed commission was very high, redress will be the higher of the commission paid to the broker, or an amount based on a retrospective application of an adjusted APR to the agreement. 

For all other agreements that qualify for redress the amount will be determined via a hybrid calculation taking the average of those same two calculations, unless the adjusted APR approach is higher. In all calculations of redress, compensatory interest is added at Bank of England Base Rate plus 1%. 

There are various factors that will add complexity to those calculations including missing data and early settlement.

Key milestones/deadlines

Scheme launch: Final scheme rules are expected by the end of March 2026, and following recent updates from the FCA, the scheme commencement date is expected to be three months after those rules are published, i.e. by the end of June 2026. 

In another update to the original CP25/27 proposals, people who complained before the scheme starts will no longer be asked if they want to opt out. Within three months of the scheme start date they will be told whether they are owed redress and how much. 

It is expected that lenders will still be required to invite in-scope customers who had not previously complained, with invites to be sent within 6 months of scheme start.  Customers then have up to 6 months to opt-in. 

Deadline for uncontacted consumers: If customers do not receive an invitation from the lender, they will have 12 months from scheme start to opt-in by contacting their lender. 

In another sensible change to the CP25/27 proposals, the FCA has indicated that firms will not be required to write to customers via recorded delivery.  Firms will now be able to choose a range of channels to best meet customer needs so long as there are appropriate safeguards to mitigate the risk of fraud.

There have been other rumours about potential changes to the rules, particularly around the application of the exclusive contractual ties criteria to captive finance companies and so the industry now awaits the final rules with anticipation. 

Strategic considerations for firms

In anticipation of the scheme’s implementation, firms should take proactive steps to mitigate operational and financial risks:

Immediate actions

• Develop a structured project plan with clear governance and accountability, including appointing an SMF with oversight responsibility.  Firms’ delivery plans will need to be shared with the FCA within 6 weeks of the scheme start
• Plan the assurance activity that will be undertaken by your three lines of defence throughout the delivery of the scheme
• Identify affected agreements within the scope period (2007–2024)
• Assess data quality and availability, especially from legacy systems. Data will need to be sufficient to determine whether an unfair arrangement existed and, if so, to be able to calculate redress using both the commission and APR remedy
• Where gaps exist, request additional information from external sources, including brokers and credit reference agencies
• Establish a document repository for contracts, disclosures, and commission records
• Model potential financial exposure, including interest and redress calculations
• Manage any final surge in complaint volumes and media scrutiny
• Secure funding strategy for remediation and operational costs

Operational readiness

• Ensure cross-functional coordination between compliance, legal, finance, and customer service teams
• Monitor FCA updates and final rules post-consultation
• Prepare for regulatory scrutiny and potential enforcement if scheme obligations are not met
• Engage third-party support for some or all of the key execution phases including project management, data analysis, redress calculations, customer tracing, claim assessment and customer communications.  Consider independent validation or assurance on key aspects of the delivery (eg data accuracy and completeness, redress calculations)

The FCA’s proposed redress scheme represents a pivotal moment for the motor finance industry. Firms must act decisively to prepare for operational execution, financial provisioning, and reputational management. While the scheme aims to deliver fair outcomes for consumers, its complexity and scale demand robust planning and agile response from all stakeholders.