Motor Finance Commissions

Lenders will have three months from the scheme start date to contact customers who have already complained and provide them with one month to opt out. If they do not, they will be assumed to have opted in.

Lenders will have six months from the scheme start date to contact customers who have not yet made a complaint or have had a complaint rejected by their firm, but not referred it to the Financial Ombudsman Service (FOS), providing them with six months to opt-in to the redress scheme. 

Given the scheme covers agreements taken out as early as April 2007, the FCA recognises that despite tracing efforts it may not be possible to obtain some customer details. To mitigate this issue, all customers will have one year from the scheme start date to contact their lender to ask for their agreement to be assessed.

Implications

While the regulator is taking steps to ensure that customers who have raised complaints and have been waiting for final responses are responded to as quickly as possible, there are operational complexities to navigate due to volumes and differing timelines. 

Lenders will need to consider carefully how they cohort, manage and track, on an ongoing basis their in-scope population. Customers will continue to move between cohorts due to ongoing customer complaints up until the point the redress scheme goes live, and/or there will be customers who proactively contact to make a claim before an opt-in letter is sent to them. It is important therefore to have a clear communication strategy and robust case management for handling customers including those who inadvertently contact outside of this strategy.

Lenders will assess opted-in cases to determine whether there was an unfair relationship and therefore liability for redress.

The FCA has set out presumptions that firms need to apply when assessing liability – first, that an unfair relationship arose from inadequate disclosure of a relevant arrangement and second, that such an unfair relationship caused loss or damage to the consumer. The FCA’s intention is to streamline case handling and make sure evidential gaps do not unfairly impact customers.

There are limited circumstances under which the presumption of unfairness of inadequate disclosure can be rebutted. For DCA arrangements these are where the customer is sophisticated or where the lowest available rate was given to the customer so that the broker was not making commission under the discretionary arrangement.

Where there was inadequate disclosure and the commission was high or the arrangement was tied, the lender can rebut if it can provide clear, contemporaneous and customer-specific evidence that the consumer would not have secured a lower APR from any other lender the broker had arrangements with at the time of the transaction, or where additional work justified the higher commission.

Implications

Lenders should consider the availability of historic data when creating a rebuttal strategy, while also assessing the operational effort that may be required to obtain the necessary evidence. The proposed requirements to meet the rebuttal criteria suggest that this will be difficult to fulfil for a number of arrangements. The FCA has estimated that operational effort required to deliver this redress scheme will cost the industry c£2bn. It may be possible to mitigate this by completing appropriate cost benefit analysis pre-implementation. 

Lenders should also consider the availability of dealer and broker contracts. Any assessment of tied arrangements can only be completed where there is documentation available. Therefore, pre-scheme activity for lenders impacted by this may include compilation of a document library. 

If a relationship is assessed as unfair, then redress must be calculated in line with the scheme rules. For the vast majority of cases (with an exception for undisclosed tied arrangements and significantly high commission), a hybrid calculation approach is proposed combining the average of the full commission refund with an APR adjustment. 

In cases where a tied arrangement or significantly high commission (>50% cost of credit and >22.5% cost of loan) was undisclosed, customers are entitled to the full commission refund but only where this is higher than redress under the APR Adjustment Method.

Where data gaps prevent precise reconstruction, firms must use standard assumptions: a median APR, a 48-month term, and typical balloon payments derived from market data. Early settlements are handled under the Consumer Credit (Early Settlement) Regulations 2004, replacing post-settlement instalments with the lump-sum amount.

The FCA expects firms to automate calculations at scale, applying the prescribed hierarchy of evidence: loan-level data first, then representative rates if incomplete. Each redress decision must explain the methodology used and, where applicable, how early settlements or set-off were applied.

The FCA proposes a simple interest model to deliver fair transparent and cost effective redress. Where unfairness is established, consumers will receive compensatory interest at the Bank of England base rate + 1%.

Implications

Whist prescription provides consistency, firms will still need to consider the completeness of their data to enable the various calculation methods proposed by the FCA. For example, the requirement for detailed transactional data may be a challenge for some firms to navigate, however the FCA has proposed that it is used for compensatory interest and early settlement calculations.

The calculation mechanics are complex and layered. As in other redress schemes of this scale, firms will need to put in place auditable redress calculators to support consistent and accurate processing. These calculators will be required to ensure loans can be accurately repriced based on the proposed APR reduction in addition to catering for where early repayments have been made. Validation of the model and its functionality will be key to demonstrating that customers are receiving fair outcomes in line with the scheme rules.

In relation to the proposed interest, the FCA also seeks views on whether certain consumers should be able to evidence a higher personal cost of funds – for example by proving they borrowed at higher rates during the same period. This case-by-case assessment requiring the provision of verifiable documentation at the provisional decision stage introduces the potential for further operational cost. 

The FCA has set out a short timeframe for delivery to bring this matter to conclusion, proposing the launch of the scheme as soon as the rules are finalised. Firms are expected to use the consultation period to assess data integrity, broker relationships and redress-calculator readiness.

Indicative milestones:

• 18 November 2025 – consultation closes
• 5 December 2025 – complaints pause lifted for non-scheme cases i.e. lease agreements
• Early 2026, date to be confirmed - Policy Statement to be issued with scheme go-live the day after 
• 31 July 2026 – proposed extension for the current complaints pause 
• Mid-2027 – scheme completion window

The FCA will monitor delivery through quarterly management-information returns, and expects all remediation to start within 12 months of go-live, with extensions only allowed in exceptional cases.

Lenders, and more specifically the accountable SMF, will be required to submit a redress scheme delivery forecast six weeks after the final rules are issued.

Complaints pause and alignment

The pause on commission-related complaints will remain until the scheme is operational, extending to 31 July 2026. During this period, firms must continue to log and acknowledge new complaints, progress non-scheme issues under DISP, and maintain full audit trails for migration once the scheme begins. Q4 2025 should be treated as the mobilisation phase for data, tracing and communications readiness.

Implications

The timeline proposed by the FCA is short, and the proposal to start the scheme the day after publication of the final rules leaves lenders with limited time to prepare. While the four-stage operational delivery proposal does allow for iterative review, and concurrent contacting of customers while also completing population and redress liability assessments, lenders may wish to consider whether there is a more efficient approach.

The FCA has included a proposal that lenders should be able to settle scheme cases without completing all stages of the process. This flexibility allows firms to avoid incurring the costs of a full investigation where the likely redress is less than the cost of continuing with the case under the scheme. However, the lender must be able to prove the redress offered is no less than required under the scheme rules.

For example, lenders may wish to complete liability assessments for the first cohort of customers, those with paused or previously rejected complaints, prior to the initial contact. A more efficient customer experience will be particularly valuable as in some cases this cohort has been waiting for a response for over a year.

Lenders could also consider leveraging technology to create a more efficient communication channel for handling a multi-stage process. In its Dear CEO letter, the FCA encouraged firms to explore the use of technology and AI to support effective delivery. Lenders may wish to explore digitised self-service options to deliver the redress scheme. This would mean customers receive quicker updates and are able to monitor progress without needing to contact the lender, mitigating in-bound operational strain.