The FCA has launched a six-week consultation, closing on 18 November 2025, aimed at delivering a sector-wide redress scheme for historic motor finance commission arrangements. The goal is to provide a streamlined and consistent route to compensation, free from unnecessary friction and the involvement of third-party claims firms.
This follows the Supreme Court’s August 2025 ruling, which dismissed most fiduciary and bribery-based claims but confirmed that some lending relationships may still be ‘unfair’ under the Consumer Credit Act. The FCA’s proposals reflect this, focusing on the existence and disclosure of the nature and size of commission and tied arrangements between brokers and lenders.
Scope and eligibility
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. Redress will apply to Discretionary Commission Arrangements (DCAs) and potentially other cases where commission disclosure was insufficient, or commissions were disproportionately high relative to the cost of credit.
To help firms assess which agreements may have disadvantaged consumers, the FCA has outlined three key indicators of potential ‘unfairness’:
- The presence of a DCA
- High commission (defined as 35% or more of the total cost of credit and at least 10% of the loan value)
- Contractual ties between lender and broker, such as exclusivity or a right of first refusal
Inadequate disclosure of one or more of these arrangements is likely to result in redress being payable to consumers. While firms may attempt to rebut the presumptions of unfairness and loss, the FCA’s analysis (and the level of evidence required to do so) suggests that successful rebuttal will be unlikely in most cases.
Redress calculation
Building on these indicators, the FCA has proposed a structured approach to compensation that reflects the varying commission arrangements. This takes the form of a two-tier redress model, designed to balance fairness with proportionality.
1. Where unfairness is due to undisclosed, significantly high commission
In certain cases, where undisclosed contractual ties exist and undisclosed commission exceeds 50% of the total cost of credit and 22.5% of the loan, consumers will be entitled to a full commission refund. However, firms must first check whether this refund is greater than the amount calculated using the APR adjustment remedy.
The APR adjustment remedy is designed to estimate the lower interest consumers might have paid had full disclosure of commission arrangements prompted them to negotiate or seek better terms. This remedy applies a 17% reduction to the APR actually paid, although in some scenarios the reduction may be less.
If the APR adjustment remedy results in a higher redress amount than the full commission refund, the higher amount will take precedence.
2. Where unfairness is due to any other reason
For all other cases, redress will be calculated using a hybrid approach — specifically, the average of the full commission refund and the APR adjustment remedy (as outlined above).
Again, if the APR adjustment remedy produces a higher redress amount than the hybrid calculation, that amount will be payable to the consumer.
In both scenarios, compensatory interest will also be added, calculated using the Bank of England base rate plus 1%. The current weighted average is 2.09% per annum.
While we’ve seen more complex redress calculation methodologies in the past, the FCA’s proposals may not be as straightforward as some had hoped. There's certainly enough complexity (particularly around early settlement calculations) to suggest that firms shouldn’t delay in starting to build their calculation tools.
Consumer access
In terms of consumer access, the FCA has outlined a straightforward participation process designed to minimise friction and ensure fairness. Consumers who have already submitted complaints will be automatically included in the scheme unless they choose to opt out. Others will be contacted within six months of the scheme’s launch and invited to opt in, while those who haven’t yet raised concerns will also have the option to proactively approach firms within one year of the scheme going live.
To support firms in managing this process, the FCA proposes extending the pause on final responses to commission-related complaints until 31 July 2026. An exception applies to leasing agreements, which must be addressed from 5 December 2025. This extension is intended to give firms the time and flexibility needed to prepare for redress in a consistent and coordinated way.
Operational delivery and broker cooperation
With the scale of the scheme and the complexity of historic commission arrangements, firms will need to prepare for a significant operational undertaking. Translating the FCA’s proposals into fair and consistent outcomes will require more than just aligning with policy. It demands robust systems, reliable data, and coordinated delivery across functions.
To manage redress at scale, firms will need to build a resilient operating model. This includes locating legacy records across archives and systems, extracting key data from agreements and broker terms, resolving customer identities across historic platforms, and using analytics to triage cases effectively. While automation and advanced tools may support speed and accuracy, the FCA’s focus remains firmly on outcomes — including reliable identification, consistent calculations, and well-evidenced fairness.
Responsibility for delivering the scheme sits with lenders. They're expected to identify and contact affected consumers, assess liability, calculate compensation, and ensure timely payments. Brokers, while not responsible for delivery, are expected to cooperate by providing relevant data and historical records. Where internal data is incomplete, firms may need to engage third-party sources to verify customer attributes and rebuild historical records. The FCA has made clear that passive approaches won't be acceptable.
The timelines set out by the FCA are notably challenging. Final rules are expected in early 2026, and just six weeks later, lenders will be required to submit their first update to the FCA — this will include each firm’s redress scheme delivery forecast.
Following that, firms must provide monthly updates covering a wide range of data points to enable the FCA to monitor progress effectively. In addition, the FCA has set specific deadlines for issuing consumer letters, assessing redress, and making payments across different consumer cohorts.
After nearly two years of waiting for regulatory clarity, the next 12–18 months are set to be extremely busy for lenders.
Market impact and strategic implications
The scheme could cover up to 30 million agreements signed between 2007 and 2020, although fewer than half of these agreements are expected to result in compensation. Average payments are estimated at around £700 per agreement, with total industry costs projected at £11 billion — comprising £8.2 billion in redress and £2.8 billion in operational costs. These figures reflect the scale of the programme and the operational demands it will place on firms across the sector.
Alongside the financial impact, the Supreme Court ruling and the FCA’s defined regulatory pathway have helped reduce legal uncertainty. As parameters are finalised and portfolios can be modelled with greater confidence, selective M&A activity may begin to re-emerge.
Looking ahead, firms should also be mindful of the FCA’s continued scrutiny of fair value and disclosure under the Consumer Duty. While the consultation is focused on redress for historic sales, the regulator has made clear that today’s remuneration models will remain under supervisory review, reinforcing the need for ongoing compliance and transparency.
Next steps for the financial sector
While there may be scope to challenge and influence certain elements of the proposed scheme, firms should begin preparing for implementation without delay. A cross-functional response team should be mobilised to review the consultation and develop a balanced response.
If not already underway, targeted data discovery covering the 2007–2024 period should begin in earnest. A scalable operating model will be essential to manage key aspects of the remediation programme, including eligibility assessment, fairness evaluation, redress calculation, quality assurance, and customer communications — with clear escalation routes for complex or vulnerable cases.
Provisions and liquidity planning should be refreshed to reflect expected redress cashflows, and market disclosures should be aligned with the FCA’s timetable. Public messaging must remain factual and neutral, reinforcing that consumers will have access to a simple, free route to use the scheme once final rules are confirmed.
The FCA will closely monitor firms’ progress to ensure effective execution across the industry. In addition to requiring regular reporting, the FCA expects each firm to appoint a Senior Manager Function (SMF) holder responsible for oversight and delivery of the scheme. As part of the delivery forecast due six weeks after the scheme’s commencement, the SMF will be required to attest to the robustness of systems and controls in place to identify the starting population and prepare records for claim assessment.
Firms must ensure appropriate governance arrangements are in place, including clearly defined first, second-, and third-line oversight. This will be critical to ensuring decisions are made in accordance with scheme rules and can be appropriately evidenced.
The FCA has made it clear (both in the consultation paper and the accompanying Dear CEO letter) that this isn't a time for delay. Firms that invest early in data readiness, operational resilience, and transparent communications will be best-placed to deliver fair outcomes and maintain consumer trust when the scheme goes live. Those that fail to prepare adequately should expect the FCA to deploy additional regulatory tools to achieve its objectives.
For more information about the consultation or support with your firm’s preparations, contact Darren Castle.
