On 30 March 2026, the Financial Conduct Authority (FCA) published Policy Statement 26/3: Motor Finance Consumer Redress Scheme (PS26/3).

In PS26/3 the FCA sets out its final rules and guidance for not one but two industry-wide consumer redress schemes for motor finance customers. It follows an earlier Consultation Paper, CP25/27, which was published in autumn 2025 and to which the FCA received over 1,000 responses. In PS26/3 the FCA confirms that it will proceed with the schemes, exercising its powers under section 404 of the Financial Services and Markets Act 2000, and details the amendments made to the proposals in light of consultation feedback.

Summary speed read

Overall, the perception amongst many is that the FCA has heard some of the concerns expressed by lenders and other firms with the proposed scheme in its earlier consultation.

The FCA is now proposing two schemes bifurcating the original 17 year time period and imposing one scheme for the seven year period from 2007 to 2014 (Scheme 1) followed by a separate scheme for the ten year period from 2014 to 2024 (Scheme 2). This separation represents a clear acknowledgement of the risk of legal challenge from lenders to its powers in connection with a scheme for the earlier period between 2007 and 2014, when the FCA was not the regulator of consumer credit and reflects the FCA’s determination that payments to consumers in the later period should not be delayed.

The FCA has, however accepted some arguments from lenders concerning the proper legal interpretation of the law of limitation; and has made adjustments to the available remedies for high commission arrangements accordingly. There will also be a ‘de minimis’ threshold for redress across both schemes, and a number of important exclusions including for certain high value loans and certain tied arrangements for captive or white label models.

In sum, the impact of the schemes remains very significant for both consumers and lenders, with a total estimated cost to lenders of over £9bn; and over £7bn of redress expected to be paid to consumers. The delta here does, however demonstrate the scale of the challenge facing lenders operationalising the schemes. The FCA will scrutinise compliance by firms very carefully and closely; and consumers who disagree with a firm’s conclusions as to eligibility for redress under a scheme remain able to challenge it through the Financial Ombudsman Service (FOS) (whose power will be limited to assessing whether the lender properly followed the relevant scheme requirements) or to pursue claims through the courts.

On process, implementation periods of 5 months (Scheme 1) and 3 months (Scheme 2) have been introduced. Firms will only need to contact consumers who have already complained or who are potentially owed money, avoiding unnecessary communication with those not due redress. Firms can use a range of communication channels and recorded delivery is no longer mandatory. The opt-out process for complainants has been replaced with direct provisional redress decisions. Consumers must now actively accept redress before payment is made, rather than acceptance being assumed from non-response.

Despite the implementation periods, time is very short now for firms to move to delivery. There will remain significant questions around interpretation of many of the scheme requirements. Given the requirement for Senior Manager attestations, it is critical that firms establish robust implementation, governance, reporting and assurance arrangements to enable effective compliance including seeking external advice and validation where appropriate. This is especially the case where firms seek to rely on exclusions from a scheme; to rebut presumptions of unfairness or seek to assert that – on the basis of the evidence available, which is likely to be limited in many cases – the existence of a relevant arrangement was adequately disclosed to the consumer at the time.

Overview of key headlines 

Much reading will need to be done this week and beyond as firms grapple with the detail. In the meantime, here’s our guide to the key headlines:

  • What is the scope?  The FCA has maintained the broad approach to scope consulted on (i.e. focussed on ‘regulated credit agreements’ with a consumer who was resident in the UK at the time of the agreement (where consumer includes sole traders and small partnerships), and including PCP and HP arrangements, but not consumer hire agreements).  Around 12.1 million agreements are estimated to be within scope, down from 14.2 million at consultation. Zero APR agreements and high-value loans above the 99.5th percentile are now excluded. 
  • What is the time period covered by the schemes? Despite much industry consternation over the length of the time period spanning over 17 years, the FCA has stuck to its proposal to require firms to revisit historic arrangements going back to April 2007.  This reflects the reality that an earlier start date could prompt a raft of complaints to the FOS or the courts being dealt with outside the schemes potentially giving rise to inconsistencies and additional administrative burdens of dealing with two different complaints handling processes. However:
    • the FCA is alive to the possibility of challenge on this and so has decided to implement two separate schemes: one for the period to 31 March 2014 (‘Scheme 1’) and one for the period from 1 April 2014 (‘Scheme 2’).  This means that any challenge on the earlier period will not impact implementation of the scheme for the later period; and
    • the FCA also accepts that lenders can consider complaints to be too late and exclude them if they relate to agreements which ended before 26 March 2020 if they only involved high commission and the firm can show that the payment of commission was clearly and prominently disclosed (even if the amount was not disclosed).    
  • What ‘unfairness’ is addressed by the schemes? The FCA has retained all three key ‘presumption of unfairness’ planks originally proposed including inadequate disclosure of a discretionary commission arrangement (DCA) but has made some changes to the other two scenarios as follows:
    • inadequate disclosure of ‘high commission’ – the threshold for unfairness has been raised with a new threshold set at 39% of the total cost of credit and 10% of the loan. This is a higher threshold for consumers than the original proposal (35% of the total cost of credit and 10% of the loan); and
    • inadequate disclosure of a contractual tie (or right of first refusal for lenders) – no presumption of unfairness will be made where the lender can prove there were “visible links” between the lender, manufacturer and franchised dealer (so called ‘captive lenders’) such as where prominent and consistent use of the same branding means it was possible for a consumer to recognise a relationship between them even without this activity being disclosed. A new potential rebuttal of the presumption of unfairness has been introduced for non-operative tied arrangements. This is available where the lender can demonstrate that the tie did not impact the broker’s decision-making — for example, because the lender had agreed to forgo reliance on it or the broker had a practice of disregarding it. Firms must support this rebuttal with transactional data and verification from internal audit or an independent auditor.
    • The ‘no-better-deal’ rebuttal of the presumption of loss also remains available in tied arrangement cases and has been amended to allow firms greater evidential flexibility.
    • In addition some ‘de minimis’ commission thresholds and exceptions are available such that cases that will now be considered fair include:
      • where commission was £120 or less before 1 April 2014 or £150 or less after that;
      • no interest was charged;
      • the DCA was not used to earn additional commission;
      • the lender can prove non-disclosure was fair or the consumer didn’t suffer loss (for example no better deal was available). 
  • Where have we landed on ‘adequate disclosure’? 

In broad terms, the FCA has maintained its approach from consultation to determining when there has been ‘adequate disclosure’ of a relevant arrangement.

Where a lender concludes that a relevant arrangement existed, the burden remains firmly on the firm to demonstrate that adequate disclosure was provided to the consumer. While the FCA has introduced some limited flexibility through the exceptions (in particular, as set out above, for ‘tied arrangements’ in connection with captive or white label models where there was a ‘visible association’), evidencing compliance many years after the event will remain challenging. In particular, the FCA has retained a high bar in demonstrating adequate disclosure across relevant arrangements; for example firms will be required to evidence that customers were provided with sufficient information about the relevant arrangement ‘to understand’ the relevant features giving rise to harm.

  • What is the approach to determining liability for redress? One of the most challenging aspects of the proposed schemes was determining whether and to what extent any inadequate disclosure that is identified caused loss or damage to the consumer.  The FCA has maintained the core liability assessment framework consulted on, while making certain targeted refinements and clarifications with the aim of improving fairness, legal certainty, consistency and deliverability. The FCA has introduced guidance with examples of where the disclosure is likely to have been presented clearly and prominently, and has confirmed that the “average consumer standard” will apply, unless there is evidence on the consumer’s file about the characteristics of the consumer which indicated that such disclosure would not have been sufficient for them to understand the information about the arrangement. The FCA has introduced a presumption of inadequate disclosure where evidence is missing, irrespective of the age of the agreement.
    • In respect of what adequate disclosure required for each of the particular arrangements:
      • Discretionary commission arrangements: Adequate disclosure required firms to disclose how the broker’s commission was linked to the interest rate charged and that the broker had discretion to select the rate within a range set by the firm. This includes the nature of the arrangement, as well as the fact a commission is paid.
      • High commission arrangements: Adequate disclosure required firms to disclose both the fact and the amount of the commission – or information that enabled the consumer to easily work out the amount, such as what the commission represented as a percentage of the loan.
      • Tied arrangements: Adequate disclosure should be in plain language and help the consumer to understand that the broker referred customers to the lender before any other lenders were considered. No unfair relationship will be presumed if the disclosure was clear that the broker was working exclusively with a lender or would refer the consumer to a specific lender before approaching any other lender. It is sufficient that the consumer understands that the credit broker would introduce consumers exclusively to the lender or give the lender the option to provide an offer of credit to the consumer before the credit broker approached any other lender.
  • How will redress be calculated?  While the FCA has broadly retained the existing schema for how redress should be calculated for different types of agreements (i.e. Johnson methodology vs the hybrid remedy methodology), it has made three significant changes.
    • Pre vs Post 2014 APR Adjustment Rate for the Hybrid Remedy Methodology: Firstly, as part of the split scheme approach noted above for pre- and post-2014 agreements, the FCA has introduced different APR-adjustment levels for these two periods:
      • In Scheme 1, hybrid methodology agreements entered into prior to 2014 will be subject to a 21% APR adjustment, while, for Scheme 2, agreements entered into post-2014, will remain subject to the 17% APR adjustment that was originally consulted on by the FCA.
      • The increased APR adjustment for the Scheme 1 period is intended to reflect that conduct was likely to have been worse in this historic period. Due to a lack of historic data, the FCA has determined the 21% rate on the basis of the 17% benchmark for the Scheme 2 period and an upper rate of 26% (which reflects the rate at which a customer would receive redress at a level similar to the Johnson redress calculation method).
      • The FCA expects eligible customers for the Scheme 1 period to receive an additional £31 per agreement as a result of this increased APR adjustment rate.
    • Caps on the Hybrid Remedy Methodology: Secondly, the FCA has introduced caps on the level of redress payable via the APR-adjustment remedy method. The redress offered to a customer will be set by reference to the lowest amount calculated under these caps, which include:
      • 90% commission plus interest: The FCA recognised that under its original proposals, c.17% of agreements would receive higher redress via the APR-adjustment remedy than the ‘Johnson’ redress methodology. This typically occurred where a loan had a low commission amount, but high APR level.
        • Following industry feedback, the FCA agrees that redress under the APR-adjustment method should not exceed the amount that could be payable under the ‘Johnson’ method, given the latter methodology is intended to represent a high watermark for harms in the context of motor finance redress. The cap of 90% commission plus interest for the hybrid redress methodology (and the removal of the APR-adjustment remedy floor from the original consultation proposals) will achieve this outcome.
      • Realised total cost of credit, adjusted to take account of minimal cost of credit: Following the consultation, the FCA recognised that a large number of customers would receive redress under the APR-adjustment methodology that exceeded the total amount of the cost of credit actually paid on the loan by the customer. This was particularly evident for agreements that had been settled early by a customer.
        • In order to avoid this outcome, the FCA has proposed that redress should be capped at the realised total cost of credit (i.e. what a customer actually paid for their loan), adjusted to take account of what the consumer would have paid had their agreement been taken out at the 5th percentile of non-zero APRs for the year it was entered into (i.e. at a rate where 95% of all loans issued that year offered a worse rate for customers).
        • This means that firms will need to run a parallel APR adjustment calculation (in addition to the 17/21% adjustment), which compares the total cost of credit paid by the customer under their loan against the amount they would have paid if they had received the 5th percentile level APR rate. Compensatory interest is then applied to each payment differential, and the sum of all payments (plus interest) forms the relevant cap that should be applied to the hybrid methodology for the loan.
        • For any loans entered into by a customer where their actual APR rate was below the 5th percentile level APR, the customer’s cap is set to £0 by default, as this indicates that the customer did not suffer any loss as a result of inadequate disclosures given the rate that they were offered for their loan.
      • Unadjusted realised total cost of credit, calculated on a simple basis: This is a variation of the cap immediately above, which is expected to be used where firms do not have sufficient payment schedule data for a loan. Under this methodology, the firm will calculate the total cost of credit paid by the customer in full (i.e. what the customer actually paid minus the loan principal) and  applying compensatory interest from the date the agreement was entered into (rather than to each payment). This variation is intended to operate as a backstop to the TCC methodology directly above, by ensuring that – even for early settlement loans – that a customer cannot obtain redress under the hybrid methodology that exceeds the amounts they actually paid for their loan. It is also intended to provide a simpler redress calculation for firms to use as a basis for any settlement offers.
      • The FCA will allow firms to offer customers redress on the basis of only one of the caps set out above – given that the other caps will either provide a lower or equal cap figure (so customers will not be disadvantaged by this approach). This may allow firms a way to run more efficient settlement processes given the complexity of these redress calculation rules.
    • Compensatory interest: The FCA has confirmed that it will proceed with its proposals for compensatory interest to be calculated by reference to the Bank of England base rate + 1%. As part of its final proposals,  the FCA has introduced a minimum floor of 3% for the compensatory interest level (to take account of the ultra-low interest rates across the relevant period), and has confirmed that customers will not be able to challenge this rate (i.e. by claiming that an alternative rate should apply to reflect consequential losses they have suffered).
  • Has the FCA provided flexibility to firms to implement the schemes? The implementation period remains tight although some additional leeway has been added in respect of older loans. Customer communications remain as originally intended – though with important flexibility (resulting in likely cost savings for lenders) to communication methods – and firms should ensure that communications with consumers are aligned with relevant Consumer Duty Requirements.  Delivery forecasts and a Scheme Implementation Plan are to be submitted to the FCA within 6 weeks (by 11 May) with monthly reporting to continue until the scheme has been completed.  Robust governance arrangements will be needed to support this timetable and give comfort to individuals who may be held personally accountable for any failings by their firms.
    • Timing
      • There will be an implementation period so firms can prepare and meet the deadlines set. The FCA has set different timelines for implementation of the redress schemes, depending on the date the loan began and whether the consumer has complained before the end of the implementation period.
      • Customers who have already complained or who complain before the end of the implementation period
        • Scheme 1 (Loans beginning from 6 April 2007 to 31 March 2014): The implementation period ends on 31 August 2026. Firms then have three months (to 30 November 2026) to confirm whether the consumer is owed money and how much; the consumer has one month (to 31 December 2026) to accept or challenge the offer; redress must be paid within one month (by January 2027).
        • Scheme 2 (Loans beginning from 1 April 2014 to 1 November 2024): The implementation period ends on 30 June 2026. Firms then have three months (to 30 September 2026) to confirm whether the consumer is owed money and how much; the consumer has one month (to 31 October 2026) to accept or challenge the offer; redress must be paid within one month (by November 2026).
      • Customers who do not complain
        • Scheme 1 (Loans beginning from 6 April 2007 to 31 March 2014): The implementation period ends on 31 August 2026. Firms then need to invite the customer to opt-in within six months (by 28 February 2027); consumers have six months to decide whether to join the scheme (by 31 August 2027); firms have three months (to 30 November 2027) to confirm whether the consumer is owed money and how much; the consumer has one month (to 31 December 2027) to accept or challenge the offer; redress must be paid within one month (by January 2028).
        • Scheme 2 (Loans beginning from 1 April 2014 to 1 November 2024): The implementation period ends on 30 June 2026. Firms then need to invite the customer to opt-in within six months (by 31 December 2026); consumers then have six months to decide whether to join the scheme (by 30 June 2027); firms have three months (to 30 September 2027) to confirm whether the consumer is owed money and how much; the consumer has one month (to 31 October 2027) to accept or challenge the offer. Redress must then be paid within one month (by November 2027).
    • Communications
      • Firms are not required to proactively contact consumers who have not complained and whose agreements do not involve relevant arrangements. However, firms will be required to contact those who have not complained where their case has been assessed as out of time for the scheme under limitation rules and is therefore not a scheme case.
      • Firms are not required to send an opt-out communication to consumers who have complained to their firm before the end of the relevant implementation period. Instead, firms are required to send a provisional redress decision or a redress determination to all consumers who have already complained as a complaint response, instead of an opt-out letter.
      • Firms are still required to invite consumers (who have not complained) to opt into a scheme if they have an agreement that is a scheme case and has one or more relevant arrangements. Firms are required to make at least 2 attempts of communication via 2 different channels for the initial opt-in communication.
      • The communications to be sent to consumers are in line with the FCA’s proposed rules in CP25/27. Firms should ensure that communications with consumers are aligned with relevant Consumer Duty requirements. The FCA has, however, removed the requirement for scheme communications to be sent by recorded delivery mail. Firms will be able to use a range of communication channels, subject to certain communications being sent in a ‘durable medium’.
    • Reporting
      • Within 6 weeks (i.e. by 11 May), all firms must submit an initial delivery forecast alongside a Scheme Implementation Plan. Monthly reporting is due one month after the scheme commences, or, for early starters, 1 month after they start to process redress payments, and will continue until scheme steps are completed.
  • What about the impact on brokers?  The FCA has largely maintained its approach to the role of brokers as consulted on in CP25/27 that: (a) brokers will be required to forward any complaint under the scheme to the relevant lender; (b) brokers must comply with requests for information within 1 month or confirm they do not hold the information (if a broker fails to respond, the lender must send a follow-up allowing a further 14 days); (c) lenders are responsible for delivering the scheme rather than the brokers, which the FCA justifies on grounds of simplicity and timeliness, as there are far more brokers than lenders and some brokers are no longer operating.   However there are several notable developments that materially affect brokers’ practical obligations and exposure:
    • Tied arrangement rebuttal:  Firms can now rebut the presumption of unfairness arising from an inadequately disclosed tied arrangement by evidencing that the tied arrangement had no practical impact on the broker’s decision-making. Brokers are required to cooperate with lenders in gathering evidence to support this rebuttal, and the evidence is likely to include transactional data on the distribution of broker introductions among lenders, along with broker attestations – creating a new practical burden on brokers.
    • No better deal rebuttal:  This has been maintained but with expanded flexibility on evidence.  Firms may now rely on broader evidence rather than requiring customer-specific evidence.
    • Implementation period:  The newly introduced voluntary implementation periods (5 months for Scheme 1, 3 months for Scheme 2) give brokers further time to address operational readiness and prepare for handling requests, particularly for pre-2014 agreements.

The FCA has also signalled that, where lenders experience delays due to broker inactivity they cannot resolve, they should notify the FCA promptly and the FCA will deploy supervisory tools to intervene where non-compliance is identified.  Brokers should therefore be alive to the risk of supervisory intervention by the FCA given the regulator has signalled active supervisory oversight of broker cooperation.