Changes made to the FCA’s final motor finance consumer redress scheme following consultation feedback

On 30 March 2026, the FCA published the finalised rules for its redress scheme to compensate consumers for the inadequate disclosure of motor finance commission. The scheme rules came into force on 31 March 2026 although firms have until 30 June 2026 before they must start contacting affected consumers.

In the last of a series of three bulletins on the FCA’s scheme, we consider the changes the FCA has made to the scheme from the draft that was circulated for consultation last October. We also comment on some changes the FCA did not make notwithstanding feedback received on the consultation, and note that, until the end of June 2026, interested parties can challenge to the legality of the scheme though an application for judicial review.

Principal changes made

The FCA received over 1,000 responses to its consultation on proposed scheme terms, noting that: “Unsurprisingly, there were many conflicting views on the … proposed scheme ... Consumer voices raised concerns that the amount of redress was not enough. Firms said that, in some instances, we would be compensating for loss not incurred. Both groups made suggestions about how the consumer journey could be simpler …”.

Although the redress scheme will still cover finance agreements entered into as long ago as 6 April 2007, the most significant change is that the FCA will now operate two schemes: the first for agreements entered into between 6 April 2007 and 31 March 2014 (Scheme 1) and the second for agreements entered into between 1 April 2014 and 1 November 2024 (Scheme 2). This change is intended to mitigate the risk, considered in detail in our first previous bulletin, that the FCA do not have the power to compel regulated firms to pay compensation for agreements entered into before the FCA were given regulatory oversight of those firms on 1 April 2014.

The other changes made fall into three main categories. We summarise below the key changes in each category.

Scheme eligibility

The gateway tests for eligibility for compensation under the Schemes remain the same. An unfair relationship within the scope of section 140A of the Consumer Credit Act 1974 (CCA) will be presumed to exist between the consumer and the lender where there was inadequate disclosure to the consumer of either:

discretionary commission arrangement (DCA);
“high commission” arrangement; or
contractual tie between the dealer and the lender.

It remains the case that lenders will not be liable for compensation if they can demonstrate that adequate disclosure was made to the consumer or that it was ‘fair’ that adequate disclosure was not made (e.g. even though there was a DCA, the dealer selected the lowest interest rate at which they would not have received any extra commission). In addition, the finalised Schemes provide that agreements with the following features or terms will be automatically considered ‘fair’:

Agreements which ended before 26 March 2020 and involved a ‘high commission’ (as defined by the FCA) but where the fact or possibility of commission being paid was “clearly and prominently disclosed” (even if the amount was not disclosed). However, as noted in our second bulletin, the fact the FCA have now excluded high commission agreements which ended more than six years ago on limitation grounds, but not older agreements involving a DCA or contractual tie, raises a number of questions.
In relation to contractual ties, if there were visible features or branding linking the dealer, lender and vehicle manufacturer, an agreement will be considered fair notwithstanding the absence of express disclosure of the tie. The intention is to exclude agreements involving a tie where consistent branding would have enabled a consumer to recognise the existence of that tie. A firm can also now rebut the presumption of unfairness by demonstrating that the tie was not operated in practice. These changes will reduce the exposure under the Schemes of vehicle manufacturers’ captive finance arms but not that of independent lenders.
High value loans, higher than 99.5% of other motor finance loans made in the same year, will be excluded on the grounds that a mass consumer redress scheme is not a suitable framework for addressing them. The relevant consumers will retain the right to complain to the Financial Ombudsman or claim in court.
Agreements where the commission paid was less than a de minimis threshold of £120 for Scheme 1 and £150 for Scheme 2 will now be excluded.
As well as retaining the exclusion that DCAs in which dealers selected the lowest interest rate acceptable to the lender which would not generate any extra commission, any arrangement which involved a zero rate APR is now excluded.
The FCA has also tightened the definition of what constitutes ‘high commission’. This is now deemed to exist where the commission represents 39% of the total cost of credit (up from 35%) and 10% of loan principal (unchanged).

Expected impact: the FCA estimates that these additional exclusions will reduce the number of agreements eligible for compensation from 14.2 million to 12.1 million.

Scheme compensation

The draft scheme proposed compensating the vast majority of consumers with a redress amount calculated under a hybrid remedy, a formula comprising the average of two other possible redress amounts plus interest:

compensation = (commission paid + market adjusted APR redress)/2 + interest

The market adjusted APR redress represents the difference between (i) the interest consumers actually paid and (ii) the interest they would have paid had the APR under their agreement been 17% pa lower. The 17% figure was based on the FCA’s findings, from reviewing a sample of loan agreements, that where a DCA existed, the APR levied was 17% pa higher than in cases where flat fee commission was charged.

Significant feedback on the consultation criticised the proposed 17% market adjusted APR mechanism on the grounds that the sample of loans the FCA had analysed was too small and drawn only from the 2019-21 period. Having undertaken further analysis, the FCA have now set an APR adjustment of 21% for cases under Scheme 1 and retained a 17% APR adjustment for cases under Scheme 2.
Compensation based on the hybrid remedy will now be capped at the higher of three different amounts: 90% of commission paid (plus interest) and two other amounts calculated by reference to the realised total cost of credit. The FCA has retained the position that if the amount a consumer would receive under the market adjusted APR redress is higher than what it would be entitled to under the hybrid remedy, they should receive the higher amount.
The finalised Schemes preserve an exception to the hybrid remedy for cases whose facts are similar to the facts in the Johnson case¹ which the Supreme Court ruled gave rise to an unfair relationship and the remedy for which was a full refund of commission plus interest. The exception has been marginally expanded. Compensation equal to a full (uncapped) refund of commission plus interest will now be available to consumers who were charged very high commission (at least 50% of the total cost of credit and 22.5% of loan principal) and where either a tie or a DCA existed (the change is the inclusion of DCAs).
Unsurprisingly, considerable feedback was received on the question of what interest rate should apply to consumers’ redress compensation. The FCA made only two changes to its proposed approach, declining suggestions to apply the 8% pa rate that applies to judgment debts or another consistent annual rate. Interest will remain at the Bank of England’s average base rate for each relevant year plus 1% but will now be subject to a floor of 3% pa with no rounding.

Expected impact: the FCA anticipate that firms will now pay less compensation than previously thought, an estimated £7.5 billion down from £8.2 billion. However, the material cause for that appears to be lower uptake by consumers: only 75% of eligible consumers are now expected to claim, down from 85%. In contrast, the FCA estimate that the average amount awarded to each consumer will increase from £695 to £829.

Scheme implementation

The FCA have consistently argued that the simple cost to firms of resolving customers’ claims (ignoring the amount of any compensation awarded) in a scenario where there is no redress scheme will be materially higher that the implementation cost of the Schemes: the estimate set out in the consultation paper was £6.59 billion. Following the consultation, the FCA have made a number of changes to streamline and reduce the cost of implementing the Schemes.

Rather than contacting all consumers with whom they entered into an agreement after 6 April 2007, firms only have to contact consumers:

- who have already complained;
- whose agreement contains a relevant feature (a DCA, high commission or commercial tie) and no exception applies to render it automatically ‘fair’; or
- whose agreement contains a relevant feature but the firm has concluded that their claim is time-barred.

Consumers can no longer object to the compensatory interest awarded on grounds that their individual circumstances mean that this does not adequately compensate them.
Firms are no longer obliged to use recorded delivery for consumer correspondence.
Consumers who complain before the Schemes start no longer have to be asked whether they wish to opt out.
Once a consumer receives a redress offer, they can immediately accept it instead of the firm having to send a provisional decision and then a final determination.

Expected impact: the FCA anticipate that these changes will have a number of impacts:

a reduction in consumer uptake of the scheme from 85% to 75% of eligible consumers;
reduced implementation costs for firms of £1.6 billion, down from £2.8 billion; and
lower total costs (for both compensation and implementation) of £9.1 billion instead of £11 billion.

Key issues raised in consultation feedback that are not reflected in the final scheme

Whilst a number of changes have been made, the FCA has declined to adopt a number of other amendments requested in consultation responses. Interested parties have three months from the end of March 2026 to challenge the validity of the Schemes by applying for a judicial review, and it is possible that some of these issues might form the basis of such a challenge. Other issues may continue to prove contentious and complicate implementation of the Schemes. We note below some of the main unresolved issues.

1. Look back to 2007: our first previous bulletin considered the risk that the FCA lack the power to compel lenders to compensate consumers under agreements predating 1 April 2014. The FCA have attempted to mitigate this risk by adopting two separate schemes.

2. Limitation periods: alongside the question of whether the FCA have the power to bring within the scope of the Schemes agreements entered into as far back as April 2007 lies the issue of limitation. As discussed in our second bulletin, the Schemes can only compensate consumers in respect of a loss for which they have a remedy in law but claims under section 140 CCA become time barred six years after the end of the agreement to which they will relate. Absent exceptional circumstances, therefore, any consumer whose agreement ended before 26 March 2020 will now be time-barred from bringing a compensation claim. However, the FCA argue that limitation periods are likely to have been extended because firms deliberately concealed the payment of commission and, one adjustment aside on high commission loans, no changes have been made to the Schemes in relation to the issue of limitation.

3. Retrospective imposition of recent rules:

Consistent with what the FCA proposed at consultation stage, the rules for the finalised Schemes provide that, subject to specific exceptions, there will have been inadequate disclosure of a relevant feature (a DCA, high commission or commercial tie) where the consumer was not “clearly and prominently” provided with the following specific information:²

· in the case of a DCA, the fact of commission and sufficient information for them to understand the dealer could set the loan interest rate and that this affected the commission the dealer would receive;

· in the case of high commission, the fact and amount of commission; and

· in the case of a tie, the fact of the tie and sufficient information for them to understand whether it gave the lender a right of exclusivity or first refusal.

Several consultation responses noted that this level of disclosure, required for a lender to avoid liability under the proposed scheme, is more wide-ranging and onerous than the disclosure that firms were obliged to make under the regulatory rules to which they were subject until at least 2021. Prior to 1 April 2014, firms were regulated by the Office of Fair Trading (OFT). Rather than issuing binding rules though, the OFT only issued non-binding guidance. There was no guidance at all regarding the disclosure of commercial ties and, prior to 2011, no guidance regarding the disclosure of commission. From 2011, firms were guided to disclose the existence of commission (although not necessarily the amount or nature of it) but only where the existence or amount of commission might incentivise a dealer’s recommendation; the amount of commission also had to be disclosed if a consumer requested it. When the FCA assumed supervisory responsibility over firms in 2014, firms became obliged to disclose commercial ties and the OFT’s 2011 guidance on commission disclosure was made into a rule. However, it was only from 2021 that firms were required “clearly and prominently to disclose … the existence and nature of commission” and, again, this only applied where the commission might incentivise the dealer’s recommendations. Some respondents argued, therefore, that the proposed scheme was retrospectively assessing lenders’ conduct and imposing liability by reference to standards and rules that were not in force at the relevant time.

The FCA’s counterargument is that an unfair relationship under section 140A CCA is not predicated on, and can exist without, breach of a of regulatory rule and, as the inadequate disclosure of key features deprived consumers of information that might have caused them to shop around for a better deal, a court would likely find the relevant relationships unfair under section 140A CCA. However, the FCA also concedes that the Supreme Court’s decision in Johnson held that, in determining whether an unfair relationship exists, all factors must be considered and a relationship will not automatically be unfair simply because of the non-disclosure of commission. On this point, the FCA contend that, in devising a redress scheme for millions of consumers, some element of objective consistency is required and liability “should not be determined purely by the regulatory arrangements in place from time to time”. They also argue that their approach is supported by the decision in Clydesdale³ where the High Court upheld the Financial Ombudsman’s decision that non-disclosure of a DCA gave rise to an unfair relationship (although others have argued that the case has distinguishing features which limit the scope of its application).

As such, it is conceivable the Schemes may face a challenge on grounds that they impose liability on firms in relation to agreements dating back to 2007 based on just one (rather than all) features of the consumer relationship (inadequate disclosure) and where the test of what constitutes inadequate disclosure is (commercial ties aside) assessed by reference to rules that firms only became subject to in 2021.⁴

Next steps

The market is now waiting to see whether any interested party challenges the legality of one or both Schemes by applying for judicial review. Should that happen, some (perhaps a material) delay to the commencement of the first if not both Schemes seems inevitable. Alongside this, claims management companies and consumer-side law firms continue to encourage consumers to eschew the Schemes and pursue legal proceedings through them (an argument that is likely to be more appealing if the Schemes are delayed).

Watch this space …

¹ Hopcroft, Wrench & Johnson v others [2025] UKSC 33
² Amended FCA rules, CONRED 5,2,3R
³ Clydesdale Financial Services Ltd v Financial Ombudsman Service [2024] EWHC 3237
⁴ See, for example, the reasons cited by FirstRand as to why it now plans to dispose of its UK finance subsidiary, Aldermore.

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