FCA’s final motor finance redress scheme: What has changed and what lenders need to do now
The FCA announced the redress scheme and compensation details
On 30 March 2026, the FCA published its final motor finance consumer redress scheme – the largest structured redress exercise the UK retail lending market has faced since PPI. The clock is running, and several obligations have already started.
What the FCA has decided
Two separate schemes address the same core issue: widespread inadequate disclosure of commission arrangements giving rise to unfair relationships under s.140A of the Consumer Credit Act 1974.
- Scheme 1 covers agreements from 6 April 2007 to 31 March 2014
- Scheme 2 covers agreements from 1 April 2014 to 1 November 2024
- An estimated 12.1 million agreements are in scope – 2.1 million reduction from October 2025 estimate
A relationship is presumed unfair where there was inadequate disclosure of a discretionary commission arrangement (DCA), a high commission arrangement (≥39% of the total cost of credit and ≥10% of the loan value), or a contractual tie that gives the lender exclusivity or a right of first refusal. Cases closely mirroring the Supreme Court’s Johnson facts receive a full commission refund plus interest.
All other scheme cases use the hybrid remedy – the average of commission repayment and an APR adjustment (17% for Scheme 2, 21% for Scheme 1) – subject to three caps designed to prevent over-compensation.
What changed from CP25/27
The final rules differ materially from the October 2025 consultation. Firms that modelled exposure or planned operations against CP25/27 need to revisit both. The key changes are:
- One scheme became two. CP25/27 proposed a single scheme. The final rules create Scheme 1 and Scheme 2 with separate rules instruments, implementation periods, de minimis thresholds and APR adjustment factors. Firms must operationalise two parallel processes.
- Implementation periods introduced. CP25/27 proposed that the scheme start the day after the policy statement was published, with no preparation time. The final rules give firms 3 months for Scheme 2 and 5 months for Scheme 1, but obligations begin immediately (see timelines below).
- High commission threshold raised from 35% to 39%. The consultation proposed 35%/10%; the final rules set 39%/10%. This alone reduces the eligible population from 14.2 million to 12.1 million agreements. Firms that modelled at the 35% threshold need to rerun their exposure estimates.
- De minimis thresholds introduced – absent from CP25/27. Agreements where the total commission was below £120 (Scheme 1) or £150 (Scheme 2) are screened out entirely before any liability assessment. This creates a new pre-screening step that reduces processing volume.
- Zero APR agreements excluded. A new carve-out not consulted on: where a motor finance agreement carried a zero APR, no relevant arrangement can exist. Firms with 0% promotional finance products should review their portfolios.
- Captive and white-label tied arrangements are excluded. CP25/27 proposed no specific carve-out for manufacturer-affiliated networks. The final rules except captive and white-label ties where visible links existed between the lender, manufacturer and franchised dealer – significant relief for Original Equipment Manufacturer (OEM) affiliated captive lenders.
- Three caps added to the hybrid remedy. CP25/27 proposed the hybrid remedy without caps. The final rules cap redress at the lowest of: 90% of commission plus interest; the realised total cost of credit (TCC) adjusted for a minimal cost of credit; and an unadjusted realised TCC cap. This prevents over-compensation on early-settled agreements (around 53% of all agreements). All three caps must be implemented in the redress calculators.
- Rejected complainants reclassified from opt-out to opt-in. CP25/27 included consumers who complained and were rejected by the lender in the opt-out cohort. The final rules treat them as opt-in – they must be proactively identified and invited to join within the opt-in deadlines.
- Requirement to contact consumers without relevant arrangements removed. Firms no longer need to proactively notify consumers where no relevant arrangement is present. This significantly reduces communication volumes.
- Recorded delivery and prescriptive administrative content requirements dropped. CP25/27 required recorded delivery for consumer letters. This requirement has been removed. Administrative communication content requirements have also been simplified, though substantive regulated letter content (set out in scheme Annexes) remains mandatory.
Net effect: Changes are broadly favourable on scope and burden – smaller eligible population, new redress caps, captive carve-outs and simplified communications. But the split into two schemes, immediate notification obligations and the reclassification of rejected complainants add operational complexity. Every internal assumption built on CP25/27 needs to be revisited.
The timelines that matter
The FCA will publish transparency data on firm progress throughout. Supervisory engagement begins during the implementation periods, not after them.
By 22 April 2026 (15 working days post-PS)
- Notify FCA of intent to use implementation period; provide name and contact details of designated Senior Manager.
- All in-scope lenders – mandatory
By ~6 May 2026 (6 weeks post-PS)
- Submit Scheme Implementation Plan and delivery forecast. Senior Manager attestation of readiness required.
- All lenders – mandatory
30 June 2026
- Scheme 2 implementation period ends. Full operational readiness is required from this date.
- Scheme 2 lenders
31 August 2026
- Scheme 1 implementation period ends. Full operational readiness is required from this date.
- Scheme 1 lenders
30 September 2026
- Provisional redress decisions due to Scheme 2 existing complainants (3 months post implementation period end).
- Mandatory deadline
30 November 2026
- Provisional redress decisions due to Scheme 1 existing complainants.
- Mandatory deadline
31 December 2026
- Opt-in invitations to Scheme 2 non-complainants with a relevant arrangement (6 months post implementation period end).
- Mandatory deadline
28 February 2027
- Opt-in invitations to Scheme 1 non-complainants with a relevant arrangement.
- Mandatory deadline
31 August 2027
- Deadline for non-contacted consumers to join either scheme.
- Consumer-facing; operationally significant
* PS – Policy statement
Priority actions for the first 90 days
The implementation periods are not a breathing space but a window in which firms must build credible delivery capability. The following actions are sequenced by urgency.
- Designateyour Senior Manager and notify the FCA (by 22 April)
A hard two-week deadline. Identify the right individual, formally document their role, and notify the FCA. Establish governance arrangements before you are asked to account for them.
- Rerun your exposure model against the final rules
The 35% to 39% high commission threshold change, de minimis thresholds, the captive carve-out and zero APR exclusion all affect your eligible population. Any liability estimate built on CP25/27 is now stale.
- Audit your data andestablishyour starting population
Map agreements by scheme, arrangement type and data completeness. Scheme 1 data – up to 19 years old – requires particular urgency: engage brokers and legacy data sources now, not when deadlines arrive.
- Submita credible Scheme Implementation Plan (by ~6 May)
The Scheme Implementation Plan (SIP) must set out your cohort decisioning approach, how you will identify relevant arrangements, limitations, and rebuttal methodology, your QA framework, and your outsourcing arrangements. Treat it as a genuine programme plan, not a compliance return.
- Build andvalidateyour redress calculator
The hybrid remedy – including all three caps and scheme-specific APR adjustment factors – must be built, tested and signed off before the first provisional decisions are due. For Scheme 2, that window is just three months from the end of the implementation period, so fast action is required.
- Design and test consumer communications
Each communication is governed by specific Annex requirements. Draft, accessibility test, and sign off every letter template before the implementation periods end. Factor in volume logistics – print, digital and multi-channel delivery at scale takes longer than you might expect.
- Establishyour QA framework
The FCA may request evidence of second-line oversight or independent assurance. Build your QA model now, covering both case-level and cohort-based decisions. If using automated decisioning, document how outputs are being quality-assured.
Questions to ask now
Firms that approach this compensation scheme as a sequenced programme – with clear ownership, honest data and a credible implementation plan – are best placed to meet the FCA’s expectations. The following questions are a useful starting point:
- Have we refreshed our exposure model against the final rules, not CP25/27?
- Is our Scheme Implementation Plan a genuine operational plan, or a compliance exercise?
- Do we know our Scheme 1 data gaps, and have we already engaged the brokers and legacy sources we need?
- Is our designated Senior Manager genuinely equipped to attest to readiness at week six?
- Are our consumer communications designed to deliver informed decision-making, or just to satisfy the Annex requirements on paper?
How Momenta can help
Translating the 584-page-long PS26/3: Motor finance consumer redress scheme document into actions is complex. Our regulatory experts can talk you through the scheme and offer practical steps and redress support to ensure you meet the regulator’s deadlines.
