FCA confirms motor finance redress scheme

The Financial Conduct Authority (FCA) has confirmed that it will proceed with a motor finance redress scheme, saying in a statement published shortly before 1700 on 30 March 2026 that it had received over 1,000 responses to its consultation paper CP25/27: Motor Finance Consumer Redress Scheme, which it published on 7 October 2025.

The regulator has made several changes to its initial proposals, saying that its final rules are ‘fair for consumers and proportionate for firms’. As a result of these changes, the FCA says that 12.1 million agreements now fall within the redress scheme’s scope, down from an estimated 14.2 million when it published CP25/27. Consequently, lenders' estimated total redress bill now sits at £7.5 billion, down from £8.2 billion, and the redress scheme is now expected to cost £9.1 billion, down from £11 billion.

What changes has the regulator made to its initial proposals?

The FCA says it has ‘tightened eligibility so only those treated unfairly can receive compensation’, with notable changes including that:

• consumers with motor finance agreements involving ‘minimal commission’ or a zero APR will not receive compensation;
• a contractual tie alone will not lead to compensation if a lender can prove there were visible links with manufacturers and dealers; and
• the regulator has raised the threshold for what constitutes a high commission.

The regulator has also said that it will implement two redress schemes, covering:

• 6 April 2007 – 31 March 2014; and
• 1 April 2014 – 1 November 2024.

This is because some consultation respondents questioned the FCA’s powers to include agreements entered into before 1 April 2014, the date the regulator assumed responsibility for consumer credit regulation from the Office of Fair Trading.

Who is eligible for motor finance redress?

Consumers will be eligible for compensation if details of at least one of three arrangements between the lender and the broker were not disclosed:

1. A discretionary commission arrangement (DCA). DCAs allowed brokers to adjust the interest rate the consumer would pay to obtain a higher commission.
2. A high commission arrangement. The FCA has increased the threshold for high commission from 35% of the total cost of credit to 39% of the total cost of credit and 10% of the loan. The 10% of the loan figure remains unchanged from the initial proposals.
3. Tied arrangements, which gave a lender exclusivity or a right of first refusal. The regulator has updated its proposals so that agreements where lenders can prove a visible link to the manufacturer and dealer will no longer fall within the scope of the redress scheme.

The FCA has also introduced some exceptions, with cases considered fair and no redress payable if:

• commission was £120 or less for agreements entered into before 1 April 2014 and £150 or less for agreements entered into after 1 April 2014;
• consumers did not pay interest;
• a DCA was used, but did not lead to a discretionary commission payment; and
• lenders can prove, ‘in certain limited circumstances’, that it was fair not to disclose one of the three in-scope arrangements or that the consumer did not suffer any loss.

While consumers generally have six years to bring a claim, the regulator stated that it did not expect lenders routinely to find that cases are out of time and therefore not eligible for the redress scheme, given the poor disclosure practices it has identified during its investigations since 11 January 2024.

How will redress be calculated?

The FCA says that approximately 90,000 consumers with cases that align closely with the Supreme Court's Johnson ruling, handed down on 1 August 2025, will receive redress comprising all the commission they paid, plus interest. The regulator reiterated that it defines these cases as those that involve:

• an undisclosed contractual tie and/or a DCA; and
• very high commission of at least 50% of the total cost of credit and 22.5% of the loan.

Consumers outside of these parameters will receive the average of estimated loss and the commission paid, plus compensatory interest. The FCA reaffirmed that compensatory interest will be calculated on a simple basis, using the annual average Bank of England base rate plus one percentage point from the date of overpayment to the date compensation is paid. 

In another change from its proposals, the regulator has introduced a ‘floor’ so that the minimum interest rate a consumer will receive for any year will be 3%; however, this change means that consumers will no longer be able to challenge the rate of compensatory interest they receive, but may still have options to pursue consequential losses outside the scheme.

How will the redress scheme work?

The FCA confirmed earlier in March 2026 that there would be an implementation period, and has now clarified that this will be to:

• 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.

As previously anticipated by a Financial Times February 2026 report, lenders will only have to contact consumers who have not complained if they are potentially owed money or those who are ‘timed out’ of the redress scheme.

Lenders will have:

• three months from the end of the relevant implementation period to contact people who have already complained, informing them whether they are owed compensation and how much; and
• six months from the end of the relevant implementation period to contact people who have not complained, with these consumers having six months to respond if they wish to join the redress scheme.

Consumers who do not hear from their lender will have until 31 August 2027 to complain directly.

The regulator also stated that ‘lenders can use a range of communication channels’ to communicate with consumers.

How much redress will consumers receive?

The FCA now estimates that the average redress payment per mis-sold agreement will be £829, up from its previous estimate of approximately £700 when it published CP25/27.

How can I claim car finance compensation?

The regulator’s redress scheme means that you do not need to instruct a solicitor and will be able to complain to your lender and claim compensation at no cost. However, there are several potential benefits to instructing a solicitor to manage your claim, including the ability to verify that any redress offer you receive is accurate, and the potential to identify additional claims for which you may also be owed redress.

Do not leave your compensation to the mercy of lenders’ calculations. Get the benefits of professional representation and instruct Harcus Parker to manage your car finance claim here.