Navigating the FCA’s motor finance redress scheme

FCA redress scheme – how did we get here? 

Many initial motor finance complaints focused on discretionary commission arrangements, where brokers were able to increase their commission by adjusting the interest rates charged to consumers. These were banned in January 2021, and in 2024 the FCA launched an investigation into historic motor finance commission arrangements.

Meanwhile, related complaints were referred to the Court of Appeal and ultimately escalated to the Supreme Court. The crucial case was Johnson vs FirstRand, which was found to represent an unfair relationship due to the non-disclosure of a large commission and a commercial tie between the broker and the lender.  

Following the Supreme Court judgement, the FCA announced a redress scheme consultation, and final rules were published in March 2026. 

Which motor finance agreements are in scope of the redress scheme? 

In line with the Supreme Court findings, the FCA redress scheme is focused on relevant agreements that could potentially be unfair due to poorly disclosed:  

• high commission (over 39% of the total cost of credit and 10% of the loan)
• tied arrangements between brokers and lenders
• discretionary commission arrangements.

There are a number of exceptions and two rebuttals – however, these are not cut and dry, and will carry a high burden of proof for lenders.

How does the FCA motor finance redress scheme work?

Recognising the potential for legal challenge for earlier motor finance agreements, the FCA redress scheme is split in two. Scheme 1 covers agreements initiated before 1 April 2014, and Scheme 2 covers agreements initiated after that date.

Motor finance redress will be calculated using one of two methods: 

• The Johnson/Commission Repayment remedy for cases with very high commission (at least 50% of the cost of credit and 22.5% of the loan); with an undisclosed tied relationship between the broker and lender and/or a discretionary commission arrangement.
• The hybrid approach - takes an average of estimated loss (based on an adjusted APR) and commission, plus interest. The APR adjustments are set at 21% (scheme 1) and 17% (scheme 2). 

What are the motor finance redress scheme timelines?

The motor finance redress scheme is moving quickly, with a short implementation window. Key dates are: 

• 11 May 2026: Six-week deadline for firms to provide a one-off information request on redress population (including an attestation from a senior manager), a scheme implementation plan and details of any rebuttals, the first forecast report (to be updated every three months).
• 30 June 2026: Implementation deadline for Scheme 2 (for motor finance agreements taken out after 1 April 2014)
• 31 August 2026: Implementation deadline for Scheme 1 (for motor finance agreements taken out before 1 April 2014)

Assurance support for your FCA motor finance redress programme

Implementing the FCA motor finance redress scheme will bring a range of operational, regulatory and financial risks. As such, firms need to ensure they have appropriate documentation in place to demonstrate their thinking, underlying assumptions and activities to support consumer redress.  
This is essential to give key stakeholders, including the FCA, appropriate assurance that the scheme is being conducted in a way that’s compliant, fair and cost effective. Firms that aren’t able to demonstrate the following, could face greater scrutiny further down the line: 

• a structured project plan with clear governance and accountability, including SMF oversight
• effective delivery plans (to be updated every three months)
• robust assessment of in-scope agreements, with clear evidence to support any exceptions or rebuttals 
• a redress calculator that is designed and operating effectively, with appropriate model validation
• documentation of all data or proxies used, in line with the FCA’s final redress scheme rules
• application of Consumer Duty throughout and during all customer communications
• effective financial modelling to reflect exposures (including redress and operational costs).

Our team of consumer credit, regulatory and actuarial experts can provide assurance over your motor finance redress programme. We can help you keep the project compliant, on track and on time, mitigating the risk of operational issues, escalating costs or firm-specific regulatory interventions.