Report: FCA’s final redress rules to ease burden on captive lenders

A Financial Times report published on 18 February 2026, citing 'two people briefed on the Financial Conduct Authority's (FCA) [final redress scheme] plans,' suggests that the regulator will make changes to its redress proposals that will cut up to £1 billion from the compensation bill of carmakers with in-house lenders.

This speculation that the regulator will row back on some elements of its proposals follows continued attacks from lenders regarding its redress plans, including, most recently, Santander, which repeated earlier criticisms of the FCA while announcing it had increased its motor finance compensation provision in its annual results.

Lenders have repeatedly claimed that the regulator's redress proposals pose a significant risk to the economy, while maintaining that they have done nothing wrong and that no harm has occurred.

What will change in the final redress rules?

According to the report, the FCA’s final redress rules will ‘exempt carmakers’ in-house finance arms from having to pay compensation to at least some customers who were not clearly told that the finance to buy their vehicle came from a lender with exclusive ties to the car dealership.’

Many car manufacturers, including Mercedes-Benz, BMW, and Volkswagen, have in-house operations, known as captive lenders, which provide finance solutions to consumers buying their vehicles. In CP25/27: Motor Finance Consumer Redress Scheme, published on 7 October 2025, the regulator states that captive lenders account for around 47% of the total liabilities lenders face under the redress scheme.

Although it is yet to be confirmed which specific changes will be in the FCA's final redress rules, the report speculates that captive lenders' finance solutions may not count as contractual ties under the redress scheme.

Captive lenders have previously argued that their loans should not count as tied agreements for new vehicle purchases, as they often lend at rates as low as 0%.

Does this change mean captive lenders will pay no redress at all?

No. If (which is not certain) this reported change is confirmed when the FCA publishes its final redress rules, which it says it will do before the end of March 2026, it will only reduce captive lenders’ redress bills for some agreements that would have otherwise been deemed as contractual ties. This means that lenders such as Mercedes-Benz Financial Services UK, which has made redress provisions totalling £424 million, may see a slight reduction in the redress they pay but they will still face a significant outlay.

Captive lenders will still be liable for redress for:

• inadequately disclosed discretionary commission arrangements (DCAs), which allowed dealerships to earn more commission for placing consumers on a higher rate; and
• inadequately disclosed high commission arrangements. The regulator defined a high commission arrangement in its redress proposals as one in which the commission was 35% or more of the total cost of credit and 10% or more of the loan amount.

Will the burden on lenders to contact consumers also be reduced?

The Financial Times also reports that the FCA may change the circumstances under which lenders should contact consumers.

Initially, the regulator proposed that lenders contact all customers who had entered into car finance agreements with them between 6 April 2007 and 1 November 2024, irrespective of whether they were eligible for compensation. Citing the same sources, the Financial Times said the FCA had indicated it may change this guidance to allow lenders to contact only previous customers who would be eligible for compensation under the final redress scheme rules.

What do these reported changes mean for consumers?

If these reported changes go ahead, some consumers who had finance with a captive lender but whose agreement did not include a DCA or high commission arrangement may no longer fall within the scope of the redress scheme.

Additionally, if lenders are permitted to contact only previous customers they believe will be eligible for redress, this introduces a further verification risk. As lenders will be responsible for determining who is and who is not eligible for compensation, consumers deemed ineligible will not even receive a communication from their lender explaining why.

Should this specific change be included in the regulator’s final redress rules, it will add to the already compelling reasons why consumers should consider instructing a solicitor to manage their motor finance claim. A solicitor can request data and challenge a lender's assertion of ineligibility for redress. This saves the consumer from having to contact their lender directly, navigate complex legalese and jargon, or risk missing out on compensation entirely because their lender chose not to make contact.

You can register your motor finance claim with Harcus Parker here.