FCA car finance redress scheme: What has changed in the final rules?

On 30 March 2026, the Financial Conduct Authority (FCA) confirmed that it would proceed with its proposed motor finance redress scheme, outlining how it would operate in Policy Statement PS26/3: Motor Finance Consumer Redress Scheme. The main headlines from the regulator's announcement were that:

• the estimated average payout per mis-sold agreement is now £829, up from £695 in its initial proposals; and
• compensation is due on 12.1 million agreements, down from 14.2 million when the FCA published its consultation.

Beyond these headlines, while many of the confirmed details of the industry-wide scheme mirror those set out in Consultation Paper CP25/27: Motor Finance Consumer Redress Scheme, on which the regulator consulted between 7 October and 12 December 2025, receiving over 1,000 responses, the FCA also made several updates to its initial proposals based on those responses.

In Policy Statement PS26/3, the regulator outlines these changes under three categories:

• tighter eligibility;
• fairer remedy; and
• simpler processes.

The remainder of this guide will explore the specific changes the regulator has introduced into the final compensation scheme rules and what these mean for mis-sold car finance customers and their claims.

Tightened eligibility

Motor finance redress scheme period

The FCA will implement two schemes: one covering the period from 6 April 2007 to 31 March 2014, and another covering the period from 1 April 2014 to 1 November 2024. The regulator said it was taking this step because:

• lenders' car finance redress liabilities exist from 2007, but the compensation scheme may not cover all of these, meaning they would need to be dealt with by the firms themselves, the Financial Ombudsman Service (FOS) or the courts; and
• some consultation respondents questioned the FCA's power to include agreements entered into before 1 April 2014, and the regulator wants to ensure that consumer redress for agreements entered into after that date should not be delayed should lenders challenge the inclusion of agreements before then.

Out of scope claims

High-value loans

Loan values higher than 99.5% of other loans, rounded to the nearest £1,000, in a particular year, will be out of scope of the FCA's motor finance compensation scheme, as they are not suitable for a scheme designed for mass-market finance products. Consumers can still complain directly to their lender or, if necessary, to the FOS. Agreements for the purchase of vehicles built or modified for accessibility remain within scope, irrespective of value.

Civil limitation

Firms have the right to exclude claims relating to high commission for agreements that ended before 26 March 2020 if they can provide evidence that it was 'clearly and prominently disclosed' that commission was payable, even if they did not disclose the commission amount. The regulator reasons that, in claims involving only a high commission, a prominent disclosure of the commission would have allowed a consumer to ask about its value and to bring a complaint if they wished. As such, standard time limits would apply.

In contrast, the FCA has stated that, in claims involving an undisclosed discretionary commission arrangement (DCA) and/or a contractual tie, disclosing either the probability or fact of a lender paying a commission to a broker is 'unlikely to be enough' to prompt the consumer to ask questions and uncover the true nature of the commission arrangements.

Exceptions to eligibility criteria

The regulator introduced three exceptions to its eligibility criteria, specifying scenarios in which consumers will not be owed compensation.

Tied arrangements 

These will be considered fair where lenders can evidence there were visible links between themselves, the vehicle manufacturer, and the car dealer. In PS26/3, the FCA stated that the 'prominent and consistent use of the same branding' between these parties would have enabled a consumer to recognise that a relationship existed.

Changes to the rules around tied arrangements had been speculated on for weeks before the publication of PS26/3, following a Financial Times report published on 18 February 2026, citing 'two people briefed on the Financial Conduct Authority's (FCA) plans'.

Small commissions

Agreements will be considered fair if the commission was:

• £120 or less for agreements entered into before 1 April 2014; or
• £150 or less for agreements entered into after this date.

The regulator said that commissions at or below these levels are unlikely to have influenced the behaviour of either the car finance broker or the consumer.

Zero APR agreements

The FCA stated that, even if a lender or broker adequately disclosed a contractual tie, consumers who received a zero-APR deal were unlikely to have negotiated or sought a better deal.

Documents published by the regulator alongside PS26/3 suggest that most of the reduction in the number of mis-sold agreements from 14.2 to 12.1 million is due to zero-APR claims that are no longer within scope.

Lenders' rebuttals

Non-operative tied agreements

Agreements with contractual ties will not be considered unfair if the lender can evidence that any tied agreement was not operating in practice and did not affect the car dealer or broker's decision to offer the consumer that specific lender's finance solution.

No better deal

Lenders will continue to be able to rebut complaints by demonstrating that the consumer suffered no loss due to no better deal being available and will now have greater flexibility around how they evidence this, so implementation is 'more proportionate, workable, and cost-effective’.

High commission arrangements

Agreements will now be considered as high commission where the commission amounts to 39% or more of the total cost of credit and 10% or more of the loan, amended from 35%/10% in the regulator's initial proposals.

The FCA said it had conducted further analysis confirming the link between higher commissions and higher borrowing costs, and that there were circumstances in which firms should have disclosed the size of the commission. The regulator added that it had not identified a specific threshold and was instead looking at cases that 'lie significantly beyond market norms’. In the scheme, this equates to agreements with a commission rate in the top 15% of all agreements.

This amendment to its proposals is likely to be among the most controversial among consumer groups. On 12 December 2025, the date the regulator's consultation closed, advocacy group Consumer Voice published its consultation response and research showing that 93% of people would reconsider a motor finance deal at a 20% increase in cost and called on the high commission threshold to be dropped from the proposed 35% to 15-20%, a position that we supported.

Fairer remedy

Hybrid remedy for estimated loss

The FCA has split its APR adjustment and says the vast majority of mis-sold consumers will receive compensation that is the 'average of [their] estimated loss and commission paid, plus interest'. The loss element will depend on when the consumer entered into their agreement, with:

• an APR adjustment of 21% applying for agreements commencing before 1 April 2014; and
• a 17% adjustment applying to those commencing from 1 April 2014.

This was another element of the regulator's proposals that received attention from Consumer Voice, who warned that its initial 17% figure was not 'sufficiently evidenced' and risked under-compensating consumers. While the FCA has acknowledged that it is introducing this hybrid remedy because 'more harmful forms of DCA were more prevalent in earlier years', it is still likely to face accusations that the 17% APR adjustment, which applies to agreements entered into from 1 April 2014 to 1 November 2024, remains too low.

Caps

Consumers who receive compensation based on the hybrid remedy will have their award capped at the lowest of:

• 90% of the commission paid, plus interest;
• the total cost of credit, adjusted to account for a minimal cost that was offered to only 5% of the market at the time, excluding zero-APR deals; or
• the actual cost of credit, calculated on a simpler basis. The regulator stated lenders may use this figure if they cannot accurately calculate the adjusted cost of credit.

The FCA said it introduced these caps to prevent consumers from receiving greater compensation than had they been treated fairly or than those who suffered the greatest unfairness.

Johnson remedy

Cases that are similar to the 1 August 2025 Supreme Court judgment in Johnson, with a very high commission of 50% or more of the overall cost of credit and 22.5% or more of the loan, and that have either a DCA, contractual tie, or both, will receive the same remedy as the Supreme Court awarded of all commission plus interest, with no caps applied.

The FCA has identified approximately 90,000 cases where this remedy will apply.

Compensatory interest rate

The regulator confirmed that simple interest will be paid on compensation awards, based on the annual average Bank of England base rate per year, plus one percentage point. However, in a notable change to its proposals, the FCA has introduced a floor to ensure the minimum compensatory rate a consumer will receive in any year is 3%. The regulator says this better reflects the real-world borrowing costs consumers would have faced and the interest rate charged, even during the low rate environment seen for most of the years covered by the scheme, as borrowing rates remained significantly above the Bank of England base rate.

The FCA also said it would no longer apply rounding to reflect annual average rates better, and that consumers would no longer be able to argue for a higher compensatory interest rate due to the difficulties in doing so and the 'disproportionate operational costs' that lenders would face.

Consumers may still be able to pursue a consequential loss claim outside of the FCA scheme.

Changes to set-off rules

Lenders will now only be able to set off compensation against any arrears and defaults under the motor finance agreement for which they owe compensation, rather than the initial proposal that set off could apply to arrears and defaults under any regulated finance agreement between the firm and the consumer.

Consumers have the right to object to set-off if there are disputes over arrears and defaults, or if they have arrears on priority debts that they could use their compensation to pay. Lenders will require consent to set off compensation against any current regulated finance agreements that are not in arrears.

Simpler processes

Implementation period

The regulator had already confirmed, on 4 March 2026, after the Financial Times reported in February on how the final FCA scheme would look, that it would include a short implementation period should it decide to go ahead with a scheme. PS26/3 clarified that this will run until:

• 30 June 2026 for agreements entered into from 1 April 2014; and
• 31 August 2026 for agreements entered into from 6 April 2007 to 31 March 2014.

Lenders can process claims sooner if they wish, but can use this time to prepare to operate the FCA scheme efficiently and ensure they meet all relevant deadlines.

Firms will then have three months from the end of the relevant implementation period to contact anyone who has already complained to tell them if they are owed money and how much.

Consumer communications

Finally, in other anticipated changes reported by the Financial Times in February, the regulator has amended requirements around consumer communications to simplify the scheme, make it more cost-effective for firms to run, and avoid confusing consumers who may have otherwise received communications even if they are not owed anything.

Whom firms will need to contact

Rather than contacting all previous car finance customers, firms will only now need to contact:

• complainants;
• those with relevant arrangements (a DCA, high commission, or tied arrangement); and
• those with relevant arrangements but who are out of scope due to civil limitation.

How firms can communicate with consumers

The FCA no longer requires firms to use recorded delivery to contact consumers and can instead use a range of channels that best meet consumers' needs, citing its own Motor Finance Consumer Awareness Survey, published in October 2025, which found that 62% of motor finance consumers prefer email over post.

Consumers will no longer be asked if they wish to opt out

Instead of asking existing complainants whether they want their case reviewed, firms will write to consumers who have already complained within three months of the end of the relevant implementation period.

Redress offers

Consumers will be able to accept an offer immediately, rather than receiving a provisional decision followed by a final determination.

What these changes mean for motor finance customers

We regard the contents of PS26/3 as broadly positive for consumers. While some of the changes to the regulator's initial proposals are significant, millions of consumers remain eligible for compensation, even with the new exceptions and tightened eligibility criteria introduced in the final scheme.

Based on the regulator's rules and guidelines, we anticipate that consumers who have already complained will begin receiving compensation payments in late 2026.

Register your claim with Harcus Parker now

The FCA's redress scheme means you can claim compensation at no cost, without instructing a claims management company or law firm to manage your case. However, despite the welcome clarity delivered in PS26/3, there are still many reasons why you may wish to instruct a law firm in relation to your claim, not least the potential for identifying and investigating claims beyond the FCA scheme, such as for mis-sold GAP insurance or irresponsible lending.

If you have yet to make a claim and wish to be represented by a team of experts, you can register your claim with Harcus Parker here.

If we are already managing your claim, our team is currently assessing your claim in line with the final rules and will be in touch in due course.