FCA Motor Finance Redress Scheme Confirmed: What Firms Need to Do Now
The FCA has confirmed it will proceed with a significant industry-wide Motor Finance Redress Scheme to compensate customers who were treated unfairly in car finance arrangements. Covering millions of agreements from 2007 to 2024, the scheme is expected to deliver approximately £7.5 billion in redress.
For motor finance providers and brokers, this represents one of the largest remediation exercises since PPI. It reinforces the FCA’s commitment to retrospective fairness and robust consumer protection.
Firms now face tight implementation timelines and must meet clear expectations on governance, execution, and customer outcomes. Early mobilisation will be critical.
Key Features of the Scheme
Eligibility Criteria
The scheme applies to agreements from April 2007 to November 2024 where commission payments were made from lenders to brokers. In-scope arrangements include:
- Discretionary Commission Models, banned since 2021, where brokers could increase interest rates to raise commission
- High commission arrangements, exceeding thresholds of approximately 39 percent of the total cost of credit or 10 percent of the amount borrowed. These thresholds are intended to identify arrangements that may have caused material detriment to customers.
- Exclusive lender broker relationships where this was not disclosed to customers
Excluded agreements include 0 percent interest deals and cases where commission levels were minimal, typically below £120 to £150. Customers who have already received redress are not eligible.
Interest on Compensation
Simple interest will be applied at the Bank of England base rate plus 1 percent, with a minimum of 3 percent, calculated from loan inception through to the date of redress payment.
Dual Scheme Structure
Two schemes will operate in parallel, covering 2007 to 2014 and 2014 to 2024. This approach reflects legal distinctions between agreements made before and after the FCA assumed responsibility for consumer credit in 2014, ensuring more recent claims can proceed without delay..
Streamlined Process
Firms are required to proactively contact:
- Customers with outstanding complaints
- Customers owed redress
- Customers who are excluded, with clear explanations of their position
Redress payments are expected to begin during 2026, with the majority completed by the end of 2027.
FCA Expectations
The FCA has set clear expectations for how firms should approach delivery:
- Swift Implementation
Systems and controls must be operational by 30 June 2026 for post 2014 agreements and 31 August 2026 for pre 2014 agreements - Accountable Governance
A named Senior Management Function holder must oversee delivery and provide formal regulatory attestation - Regular Reporting
Firms will need to submit structured progress reports to the FCA, including volumes of customer contact, payments made, and exclusions - Clear and Fair Communications
Customer communications must be accurate, accessible, and secure, with a focus on clarity and transparency - Customer Support
Firms must be equipped to support vulnerable customers and manage complaints or disputes effectively
What Firms Should Do Now
Mobilise a Redress Programme
Establish a cross functional team spanning compliance, legal, data, and technology. Strong programme governance will be essential from the outset.
Audit and Validate Data
Identify all in scope agreements and ensure underlying commission data is complete, accurate, and accessible. Pay particular attention to historical commission data, which may be fragmented or inconsistently recorded.
Develop Calculation Models
Build and test redress calculation models that can handle both hybrid and full refund methodologies at scale. Calculation methodologies should align with FCA principles, be auditable, and account for scheme-specific thresholds and interest rules.
Prepare Customer Communications
Design clear customer journeys supported by scripts, templates, and escalation protocols. Communications should be tested for clarity and fairness.
Scale Operations
Assess whether existing systems and operational capacity can support the expected volume of activity. This may require technology investment or additional resourcing. This includes planning for sustained customer servicing capacity across 2026–2027.
Ensure Board Oversight
Maintain clear governance structures, with documented oversight and defined accountability. Prepare for Senior Manager attestation requirements.
The Motor Finance Redress Scheme represents a significant regulatory intervention with wide-reaching operational and financial implications.
For firms, the challenge will not only be meeting deadlines, but delivering a process that is accurate, efficient, and fair to customers. The scale of the exercise means that gaps in data, governance, or execution will be quickly exposed.
Firms that act early, invest in robust delivery frameworks, and maintain strong oversight will be best positioned to navigate the scheme effectively.
