Key develpments and legal milestones
- 28 January 2021: FCA bans Discretionary Commission Arrangements (DCAs)
- January 2024: FCA launches Section 166 Skilled Person review
- October 2024: Court of Appeal rules brokers must obtain informed consent for commissions
- December 2024: FCA extends complaint pause to include non-DCA cases
- April 2025: Supreme Court hears appeal; judgment delivered Aug 2025
- August 2025: Supreme Court confirms unfair relationship in Johnson case
- October 2025: FCA publishes consultation on redress scheme
- November 2025: Consultation closes (18 November 2025 for scheme design; 4 November 2025 for complaint handling rules)
- Early 2026: Scheme expected to launch; compensation process begins
The proposed redress scheme
What is in-scope
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:
- Discretionary Commission Arrangements (DCAs) – brokers could adjust interest rates to increase their commission.
- High commission arrangements – commission exceeding 35% of the total cost of credit and 10% of the loan.
- Exclusive contractual ties – brokers had near-exclusive relationships with lenders.
What is the redress
For some agreements, where undisclosed commission was very high and there was also a tied arrangement between the lender and broker, redress will be a refund of the commission plus compensatory interest.
For all other agreements that qualify for redress the amount will be determined via a hybrid calculation taking the average of the refund of commission and an amount based on a retrospective application of an adjusted APR to the agreement, again with compensatory interest added.
There are various factors that will add complexity to those calculations including missing data and early settlement.
Key milestones/deadlines
Scheme launch: Expected early 2026.
Lenders to existing complainants to confirm whether in- or out-of-scope: Within 3 months of scheme start. In-scope customers given option to opt-out within 1 month.
Lenders to invite in-scope customers who had not previously complained: 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 lender, they will have 12 months from scheme start to opt-in by contacting their lender.
Deadline for sending provisional redress decisions to customers: Within 3 months of determining that a customer is in-scope, which means that existing complainants should receive redress within 7 months of the scheme start and customers who opt-in should all receive redress within 15 months of scheme start.
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
- Prepare for another 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.
