FCA Consultation on Motor Finance Redress Scheme

The FCA is proposing a redress scheme based upon the unfair relationship provisions in sections 140A-C of the Consumer Credit Act 1974 (CCA).

The scope is broad and is wider than just discretionary commission arrangements (DCAs). The scope is limited to regulated motor finance agreements taken out by consumers (which for this purpose does include sole traders and small partnerships) between 6 April 2007 and 1 November 2024 where there was inadequate disclosure of any of the following in connection with the entering into of a motor finance agreement:

• A DCA
• The payment of a "high" commission
• A tied arrangement
• Any other arrangement between a lender and a credit broker which incentivised the credit broker to introduce consumers wishing to enter into motor finance agreements to that lender.

The FCA is not proposing to include any de minimis threshold for the scheme (i.e. firms cannot exclude commission payments on the basis they are low value). Cases where no commission was paid are excluded.

Importantly, as consumer hire agreements are not subject to the unfair relationship provisions in sections 140A-C of the Consumer Credit Act 1974, they are outside of the scope of the scheme.

Consumers who have already been compensated for complaints covered by the scheme will also be excluded from it and there are a limited number of other exclusions.

Whilst the rules will apply to lenders and brokers, motor finance lenders will be required to deliver the redress scheme. The FCA has set out expectations on brokers to comply with information requests received from lenders.

Even though the scheme is in the consultation phase, the FCA has suggested firms start preparing for the scheme and gathering records now, rather than waiting for the scheme to start.

Whilst technically customers who have not previously complained will need to opt-in, the scheme is complex and requires work by lenders to identify customers.

• Lenders will need to identify which agreements are “scheme cases” and for these cases will need to make consumers aware of the scheme and invite them to decide whether they want to have their case assessed under it.
• Consumers who have complained to their lender, but not to the FOS, will be included unless they opt out. These consumers will need to be contacted within 3 months of the start of the scheme and they will have 1 month to confirm if they are opting out.
• Consumers who have complained and had their complaint rejected will be able to have their case reconsidered under the scheme.
• Consumers who have not yet complained (or have had their complaint rejected but did not go to the FOS) will be asked to opt in.
• After the opt-in period has ended consumers will not be able to complain to the firm or the FOS unless there are exceptional circumstances.

The FCA has based the scheme on rebuttable presumptions. A relationship is presumed to be unfair if there was inadequate disclosure of:

• A DCA
• A "high" commission, which is a commission that is equal to or greater than 35% of the total cost of credit and 10% of the loan (both elements must be satisfied to fall within the scheme)
• A tied arrangement (which includes both an exclusive tied arrangement and arrangements involving a first right of refusal with a lender)

An unfair relationship will lead to a rebuttable presumption of loss or damage.

Lenders will therefore need to review the data they hold, the data they need from brokers and consider the best way to assess cases to determine in which cases the presumption can be rebutted. 

Disclosure is presumed inadequate unless the lender can evidence the contrary. The FCA has specifically stated disclosures that only included that commission would or may be paid are inadequate.

Disclosure will be inadequate unless clear and prominent information about the relevant arrangement was provided to consumers before they agreed to the loan in a way that ensured the attention of the average consumer would be brought to it. The relevant disclosure is:

• For DCAs: The fact of commission and how the commission was linked to the interest rate charged and that the broker had discretion to select that rate within a range set by the lender.
• High commissions: The fact and amount of commission or enough information so the customer could easily work out the amount (such as a percentage of the loan amount).
• Tied arrangements: The tied arrangement and whether it required the broker to introduce the customer exclusively to the lender or approach one lender in priority to others.

The average consumer test applies unless there is evidence on the file that the customer’s characteristics indicated that the disclosure would not have been sufficient (e.g. language barriers).

A lender can rebut the presumption of inadequate disclosure if it can provide clear, contemporaneous, and customer-specific evidence that the customer was sophisticated enough to understand the arrangement would be in place. The FCA’s articulation indicates this will only apply to a narrow set of circumstances.

Where there is a lack of evidence to the contrary (e.g. due to data not being retained) the FCA proposes the relationship will be presumed to be unfair.

The presumption of unfairness can be rebutted if the lender can evidence:

• In all cases: Adequate disclosure was made
• For DCAs: there is evidence showing the broker placed the loan at the bottom of the DCA
• For high commissions: there is evidence that no better deal was available to the customer from the broker’s panel of lenders
• For tied arrangements: the FCA has not confirmed its position and has invited views on when a tied arrangement would be “obvious” to a customer (e.g. where a franchised dealer had an exclusive arrangement with the manufacturer’s lending arm). However, it has confirmed that the presumption of loss or damage can be rebutted if there is evidence that no better deal was available to the customer.

Evidence can include the following but must always demonstrate the disclosure made to the individual customer and be clear and unambiguous:

• Customer-specific evidence, such as timestamped communications
• Evidence from standardised documents provided the lender can evidence they were in use at the relevant time, such as standard disclosures or dated and version-controlled lender rate sheets
• Evidence in relation to other customers that shows the standard disclosure practice of the lender or the credit broker at the relevant time

The FCA has proposed two methods of redress based on the following remedy calculations: 

• Commission repayment remedy: Payment of the commission amount to the customer
• APR adjustment remedy: This involves a more complex calculation which is broadly as follows:
  • The FCA has provided a calculation which broadly requires lenders to deduct 17% from the APR to produce a market-adjusted APR (unless, in DCA cases, this falls below the lowest APR at which the broker would have received additional commission under the DCA in which case that APR should be used instead).
  • Lenders should take the difference between each payment made under the loan to what it would have been using the market adjusted APR to calculate the customer’s loss.
  • Lenders should apply compensatory interest to each “overcharged” payment.

The FCA has stated the APR adjustment should be done using actual cashflows with modelled or assumed cashflows only being used as a fallback. 

The redress calculation will depend on the unfairness identified: 

• If the unfairness identified included inadequately disclosed commission equal to or greater than 50% of the total cost of credit and 22.5% of the loan amount and a tied arrangement, the commission repayment remedy should be used unless the APR adjustment remedy would be higher (in which case the higher remedy should be used).
• In all other cases, the remedy is a hybrid remedy by taking the average of the commission payment remedy and the APR adjustment remedy, unless using the APR adjustment remedy alone would be higher (in which case the higher remedy should be used).

The FCA has indicated that lenders should take early settlement (where relevant) into account to ensure the redress calculation mirrors the customer’s real economic loss. However, the FCA has indicated if data required for the early settlement calculation is missing, it should be assumed the loan ran to term.

The FCA has also indicated that lenders will be able to set-off redress against sums the customer owes in certain circumstances.

The FCA has proposed simple interest using the average annual Bank of England rate +1% rounded up to the nearest 0.25%. The FCA has set out a calculation formula to apply this rate.

Whilst the FCA has recognised that limitation periods must not have expired for cases to be included in the scheme, it has indicated it does not expect lenders to be routinely finding that a case is out of time for the scheme. The FCA has referenced that the limitation period does not begin to run where any fact relevant to a claim has been deliberately concealed from the consumer by the defendant or its agent until such time as the consumer could, with reasonable diligence, have discovered it (s32(1)(b) of the Limitation Act 1980). The FCA says it does not consider that a partial disclosure that commission may be payable would normally be sufficient for lenders to argue that the consumer cannot rely on s32(1)(b).

The FCA has heavily prescribed the customer outreach and communications that must be sent by lenders operating the redress scheme.

This includes contacting customers who have already complained within 3 months of the scheme starting and customers who haven’t already complained within 6 months with a number of letters and reminders depending on whether the customer needs to opt-in or opt-out. The communication strategy is complex as the customer’s response will also trigger different timescales.

Some key points in the customer communication strategy includes: 

Strict timescales in which communications must be sent.

• Prescribing the form of communication as letters printed on the letterhead of the lender and dispatched by recorded delivery mail
• Enabling the customer to response free of charge, for example including pre-paid envelopes
• The proposed scheme rules include over 10 pages of prescribed content that must be included in different letters
• Certain communications will attract specific requirements (for example, redress determinations must include a link to the Financial Ombudsman).

Lenders also need to be aware of the different dates for when complaints currently subject to the pause will be “un-paused”:

• 5 December 2025: Start sending final responses for motor consumer hire complaints that were subject to the pause.
• 1 August 2026: Start sending final responses for motor regulated credit agreement complaints that were subject to the pause.

Lenders are required to report a delivery forecast (with prescribed content) to the FCA within 6 weeks of the scheme effective date, followed by monthly reporting requirements.

In order to keep up with reporting requirements, lenders are going to need to be on top of their data and have a well-organised scheme from day one.

In addition to reporting requirements, the FCA is proposing to require attestations from an appropriate SMF confirming their firm has robust process, systems and controls in place. The wording of the attestation will be crucial as well as the lender having a sufficient process in place to enable the SMF to make the attestation.

Deadline for response to the FCA proposals on how long firms have to respond to certain motor finance complaints: 4 November 2025

Deadline for response on redress scheme proposals: 18 November 2025