The Financial Conduct Authority set out the rules for its Motor Finance Redress Scheme on 30 March 2026. The scheme targets historic motor finance agreements where customers may have been treated unfairly because important information about commercial arrangements between lenders and brokers (typically dealers) wasn’t disclosed to them.
This article does not seek to summarise the mechanics of redress or calculation methodology. Instead, it focuses on the FCA’s supervisory and enforcement expectations, and the governance and individual accountability risks arising from scheme delivery.
Expect the FCA to take action where firms materially fall short in delivering the scheme, particularly where failures point to weaknesses in governance, systems and oversight. A central feature of the final rules is the FCA’s deliberate focus on senior management accountability for delivery, signalling that redress implementation will be treated as a live conduct risk rather than a historic clean-up exercise.
Scheme overview (high-level context only)
The FCA has opted for a mandatory, industry-wide scheme in two parts: scheme 1 for agreements made between 6 April 2007 and 31 March 2014 and scheme 2 for agreements made between 1 April 2014 and 1 November 2024, with a slightly longer (an additional two months) implementation period for scheme 2, given the data difficulties associated with older agreements.
The FCA has tightened eligibility so that only consumers who were not given details of at least one of the following three arrangements will be considered for compensation: Discretionary Commission Arrangements (DCAs) whereby the broker had discretion to adjust the interest rate offered to a customer to earn a higher commission; high commission arrangements now defined as at least 39% of the total cost of credit and 10% or more of the loan; or contractual ties between a lender and a broker (usually the dealer) that gave a lender exclusivity or a right of first refusal, unless the lender can prove there were visible links between the manufacturer and dealer (more on these below).
There are several exclusions where the presumption of unfairness will not apply. Agreements where commission was £120 or less (before 1 April 2014) or £150 or less (from 1 April 2014) are excluded, as are zero interest agreements and agreements where a DCA existed but was not used to earn additional commission. Agreements where the lender can prove it was fair not to disclose the relevant arrangements or the consumer did not suffer loss are not covered (for example, where a tie was not operated in practice or no better deal was available). Very high-value loans are also not covered. However, customers may still pursue complaints outside the scheme, including via the firm or, where eligible, the Financial Ombudsman Service.
Consumers generally have six years from the end of their agreement to bring a claim. However, the FCA has made clear that period is likely to be extended where information about the commission arrangements was deliberately concealed. In practice, the FCA has signalled that firms are unlikely to be able to rely routinely on limitation arguments, given how poor disclosure generally was between 2007 and 2024.
The FCA has made a particularly important change in the final scheme in relation to captive finance (where the lender is owned by a parent company to provide loans to customers buying their products). In the final scheme, a contractual tie alone will not trigger compensation where the lender can prove there were visible links with a manufacturer and dealer. In other words, a visible link is if the lender–manufacturer–dealer connection was apparent to customers through branding, documentation, showroom materials, digital journeys and disclosures.
Supervision and governance: need to know for firms
1. Expect enforcement: The FCA has established a dedicated supervisory team to ensure firms follow the rules, including assessing whether any exclusions of consumers have been applied appropriately. Firms should expect active supervision, regular reporting, and potential enforcement where execution falls materially short of regulatory expectations.
2. Senior management accountability: By 13 April 2026, firms must notify the FCA whether they intend to use the implementation period for scheme 1 and/or scheme 2, and provide the name and contact details of a senior manager responsible for scheme oversight. The responsible senior manager will be required to attest the firm’s readiness to take steps to implement the scheme, confirming their firm has robust processes, systems and controls in place to successfully identify potentially impacted consumers, identify the firm’s own records required to assess scheme claims and obtain the records required when these are not held by the firm. Designating a named individual increases the likelihood of individual accountability where there are serious deficiencies in implementation or misleading attestations. The FCA’s aim here is to make sure that firms deliver good outcomes for customers; individual accountability generally acts as a more credible form of deterrence.
3. Scheme Implementation Plan requirements: The FCA expects firms to send them a Scheme Implementation Plan within six weeks of publication of the final rules, alongside their delivery forecast. The plan must set out the firm’s proposed approach to key scheme steps, including how many cases will be grouped and managed through cohort-based decision-making, how firms will identify relevant arrangements and apply limitation and rebuttals, how they will assure outcomes, and how they will structure controls to prevent errors and manage risks. At this point, firms will also be required to report one-off information about the number of motor finance agreements in their starting population, the complaints received prior to the scheme effective date, and whether those complainants have professional representation.
4. Enforcement risks: The primary enforcement risk is failure to implement the scheme properly. Risks include incorrect assessment (for example interpreting and applying the exceptions with the aim of reducing the firm’s redress bill), inconsistent or opaque methodologies, and data weaknesses.
5. Data gaps are not an excuse: Firms will certainly have gaps in documentation. The FCA has proactively been suggesting ways to plug data gaps since early 2024 and firms should have had the foresight to have begun taking steps before the final rules were published. Baked into the final rules are prescribed alternative values where data gaps still remain having exhausted FCA recommended steps to plug those gaps and the FCA will take a dim view of firms who don’t make reasonable endeavours here. Firms should evidence how they have attempted to plug any gaps and meet the FCA’s expectations.
6. FCA will judge on delivery: Firms should demonstrate what they have put in place to make sure that the scheme is being delivered to a high standard. Firms doing the bare minimum will be at risk for enforcement action. Although the scheme is about historic practises, scheme implementation failures could well be treated as present-day misconduct.
The FCA says that the scheme is both fair for consumers and proportionate for firms. Although there is a view that the scheme goes further than the Johnson v FirstRand Bank ruling and speculation that lenders may mount a judicial review, firms will be weighing up their exposure against the cost of a review.
Sushil Kuner leads Freeths’ financial services regulatory practice in the UK
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