Motor Finance

April 2026

The FCA has published PS26/3: Motor finance consumer redress scheme, setting out its final approach to an industry-wide compensation scheme for motor finance. The policy statement follows consultation CP25/27, which attracted significant stakeholder engagement with over 1,000 responses submitted during the consultation.

The announcement confirms the criteria for eligibility, methods for calculating compensation and a lender-led opt-in process for affected customers. The FCA estimates that 12.1 million agreements (down from 14.2 million at consultation) will be considered unfair and that the total redress costs could be around £7.5 billion (down from £8.5bn). The average payment per agreement is now estimated at £829, up from £695 at consultation. However, this primarily reflects the removal of low-value redress awards from eligibility scope, rather than an expansion in scheme generosity.

Scheme at a glance:

The FCA has confirmed an industry-wide motor finance redress scheme to compensate customers who were treated unfairly between 2007 and 2024.
The FCA estimates that the scheme will result in £7.5 billion in redress payouts, with millions of claims settled in 2026 and the vast majority by the end of 2027.
The redress scheme has been split into two: one scheme covering agreements entered into from 6 April 2007 to 31 March 2014, and a second covering agreements from 1 April 2014 to 1 November 2024.
While the overall policy intent for eligibility and redress calculation broadly remains, the final rules have narrowed the in-scope population and updated the redress methodology (including caps on redress value):
- Eligibility has been tightened through targeted exceptions, including a de minimis commission threshold of £120 for pre-1 April 2014 agreements and £150 for later agreements, with zero-APR agreements also treated as fair for scheme purposes.
- The rules also narrow the treatment of tied arrangements. Contractual ties remain relevant in principle, but certain captive and white-label arrangements with franchised dealers can fall outside scope where firms can evidence clear and prominent branding or trading-name links.
- The redress approach has been recalibrated. For most cases receiving the hybrid remedy, the estimated-loss element now uses an APR adjustment of 21% for pre-1 April 2014 agreements and 17% for later agreements.
- Compensatory interest has also been revised. Redress will include simple interest based on annual average Bank of England base rate plus 1%, subject to a minimum 3% floor in any year.
The FCA has also made changes intended to streamline delivery, including removing the requirement to proactively contact non-complainants who are not due redress and allowing firms to use alternative communication channels rather than letters sent with recorded delivery.
With the introduction of an implementation period, firms now have a short window to prepare: until 30 June 2026 for loans taken out from 1 April 2014, and until 31 August 2026 for earlier agreements.

Actions for firms:

Move quickly from planning to delivery: firms now need to operationalise two related schemes, each with its own timetable and nuanced differences in scope boundaries and redress mechanics.
Confirm governance and implementation planning: firms should finalise accountable senior ownership and a feasible implementation plan, including the practical readiness of systems, controls and delivery governance. Firms must notify the FCA within two weeks of the scheme effective date (31 March 2026) if they intend to use the implementation period for Scheme 1 and/or Scheme 2, and submit their Scheme Implementation Plan six weeks after 31 March 31.
Prioritise data, cohorting and case identification: firms need to identify all potentially in-scope agreements across the scheme period; determine which are scheme cases; assess relevant arrangements, exclusions and limitation; and then cohort customers accurately so each case follows the right contact, assessment and redress path.
Develop redress calculation capability: firms will need to operationalise differentiated remedies, caps, interest and scheme-specific assumptions accurately, consistently and at scale — with full auditability.
Get customer communications ready: the scheme requires firms to explain outcomes clearly and consistently, in line with Consumer Duty requirements, making communications design and operational journeys a critical outcome.
Revisit impact assessments and provisions: any earlier modelling based on consultation proposals should be revisited to reflect the narrowed eligibility perimeter and updated redress approach.

Key updates to the scheme

The FCA is implementing two schemes:

Scheme 1: covering 6 April 2007 to 31 March 2014
Scheme 2: covering 1 April 2014 to 1 November 2024.

This implementation approach is intended to reduce the potential legal risk associated with the earlier time period.

Eligibility & redress

The scheme remains broad, with the core approach to eligibility and redress largely unchanged.

Eligibility has, however, narrowed through some targeted adjustments, including:

the introduction of a de minimis commission threshold, below which undisclosed commission is not deemed to have caused harm (£120 for Scheme 1 and £150 for Scheme 2);
an increase in the ‘high commission’ threshold from 35% to 39% of the total cost of credit;
the exclusion of 0% APR loans; highest value loans; and cases where a discretionary commission arrangement (DCA) was not used to earn additional commission.

The assessment of fairness and eligibility for redress continues to hinge on whether the lender has failed to ‘adequately disclose’ one of the following:

A DCA;
High level commission (where the commission is equal to or greater than 39% of the total cost of credit and 10% of the loan);
A contractual tie that gives a lender exclusivity or a right of first refusal, with a new carve out for certain captive lender/white label arrangements.

There remains a presumption of an unfair relationship where disclosure is inadequate, with the burden on the lender to rebut this. In practice, this remains likely to be difficult given the FCA’s expectations around clarity, nature and prominence of the disclosures.

The FCA has also updated the redress methodology, including three new caps on the redress value and differing thresholds across the schemes. There is also final clarity on compensatory interest, which will be payable at Bank of England base rate of +1%, subject to a 3% annual floor. The ability for customers to raise case‑by‑case objections by evidencing that a higher rate should have applied has been de‑scoped, removing an area of potential operational complexity.

Operational approach

The FCA has introduced an implementation period to allow lenders to prepare, with three months for Scheme 1 and five months for Scheme 2.

Lenders are still required to contact all eligible customers, although the FCA has removed the significant requirement to contact customers that have not complained and are due no redress. Existing complainants are now to be included automatically with no opt-out window, while non-complainants will be asked to opt-in.

Lenders have three months from the start date of each scheme to contact customers who have already complained and provide them with a provisional redress decision and six months to contact customers who have either not previously made a complaint or whose complaint was rejected by the firm but not referred to the Financial Ombudsman Service (FOS). These customers will then be given six months to opt into the redress scheme, or to consider an initial redress offer.

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 contact details. To mitigate this issue, all customers will have one year from the scheme start dates to contact their lender to ask for their agreement to be assessed.

The FCA has removed the requirement for all communications to be sent by recorded delivery, allowing lenders to use alternative and digital channels best suited to customer needs.

The onus remains firmly placed on a designated Senior Manager to oversee the scheme, with attestation required on preparation activity. In addition, firms must confirm whether they intend to use the implementation periods for Scheme 1 and Scheme 2 within two weeks of publication of the final Policy Statement, and submit an initial delivery forecast and Scheme Implementation Plan within six weeks.

Key implications for firms

The implementation of a lender-led scheme remains operationally complex, with differing timelines based on whether customers have previously complained and across schemes. Whilst a short implementation period has been introduced for both schemes, the timeline is still challenging. While the operational delivery approach does allow for iterative review, and concurrent contacting of customers while also completing population and redress liability assessments, many lenders will want to consider a more efficient approach, which further limits the timeline.

Lenders will need to consider carefully how they identify, cohort, manage and track their in-scope population on an ongoing basis. Customers will continue to move between cohorts as new complaints are raised, right up until the implementation period concludes. Additionally, some customers may proactively contact their lender to make a claim before receiving an opt-in letter. It is therefore important that lenders have a clear communication strategy and robust case management processes in place, to effectively handle all customers, including those who contact lenders outside of the planned approach.

Lenders should also consider leveraging technology to create a more efficient communication channel for handling a multi-stage process. In its initial 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 inbound operational strain.

While the final rules have removed the requirement for all communications to be sent via record delivered, the FCA has increased its focus on communications. Firms need to deliver targeted, clear and well-controlled journeys that support good consumer understanding, reflect Consumer Duty expectations and work for vulnerable or digitally excluded customers. They will need to align communications closely to the case identification and workflow design, because different customers will follow different routes depending on whether they complained, whether there is a relevant arrangement, and whether a limitation decision is being applied.

Finally, the FCA has included the option for lenders to settle scheme cases without completing all stages of the liability review. 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. This may be particularly beneficial for lenders with smaller books, where the operational costs are material compared to their expected redress amounts.

Under the final rules, there remain limited circumstances where the presumption of unfairness of inadequate disclosure can be rebutted — with a high evidential bar.

Rebuttals include a ‘sophisticated customer’ test for DCA, a ‘no better deal was available’ test for high‑commission or tied arrangements, and a new rebuttal where firms can evidence that a tied arrangement was not operated in practice.

Lenders should consider the availability of historic data when creating a rebuttal strategy, while also assessing the operational effort and cost that may be required to obtain the necessary evidence. The proposed requirements to meet the criteria suggest that this will be difficult to fulfil for many arrangements.

In addition, the evidential bar for all rebuttals is high — and the FCA has already indicated it will “closely supervise” lenders relying on the ‘no better deal’ rebuttal. Due to the subjective nature of the ‘no better deal’; rebuttal, the regulator has also mandated internal or external auditor review of any conclusions drawn. Lenders should factor this into their approach and planning.

For the majority of cases the hybrid calculation approach has been confirmed, combining the average of the full commission refund with an APR adjustment. A limited number of Johnson-like cases with significantly high commission and a contractual tie/DCA will receive a full commission refund.

The FCA has prescribed a thorough redress methodology, that accounts for where data gaps may be present. Firms should use actual payment data where available. If that is not possible, they should use the contractual payment schedule; and if that is also unavailable, they should use an amortisation formula based on the APR under the agreement and the agreed term.

The FCA expects firms to automate calculations at scale, applying the prescribed hierarchy of evidence and calculation methodology. Each redress decision must explain the methodology used and, where applicable, how early settlements or set-off were applied. For hybrid remedy cases, firms must also apply the new three prescribed caps, as required.

Whist prescription provides consistency, firms 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.

The calculation mechanics are complex and layered. As in other redress schemes of this scale, firms 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 prescribed 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.

The FCA has set out a short timeframe for implementation and delivery to bring this matter to conclusion.

Indicative milestones:

Scheme 2:

30 June 2026 — Implementation period ends
30 September 2026 — All initial communications to existing complaints
31 December 2026 — All initial communications to eligible customers that have not previously complained
30 September 2027 — All redress determinations communicated

Scheme 1:

31 August 2026 — Implementation period ends
30 November 2026 — All initial communications to existing complaints
28 February 2027 — All initial communications to eligible customers that have not previously complained
30 November 2027 — All redress determinations communicated

Customers are requested to respond to redress offers within 1 month, and lenders to pay 1 month afterwards. This means the schemes could continue into 2028 for some lenders, but many lenders should be able to conclude sooner if communication and assessment timelines are accelerated.

The FCA will monitor delivery through significant monthly regulatory reporting and expects all remediation to start promptly.

Complaints pause and alignment

The pause on commission-related complaints, put in place by PS25/18, remains in place until 31 May 2026. The FCA has provided additional clarity on the CONRED/DISP interaction, with all complaints to which the scheme rules apply (including non-scheme cases) covered by CONRED from 31 March 2026 (including any parts of the complaint not covered by the scheme). This means that firms will be able to respond to the full complaint in one go to support customer understanding and operational simplicity.

However, because the pause finishes before the scheme’s implementation period, firms will need to start responding to some commission complaints from 1 June 2026. This includes, for example, agreements entered into after 1 November 2024. Firms will have 8 weeks, less any time that had already passed before the pause was introduced, to send a final response.

Actions for lenders to take now to prepare

Prepare for the redress scheme implementation

Many lenders have already been extensively preparing for a redress scheme throughout 2026 and should build on this momentum given the short implementation period

The final rules provided certainty for firms to progress the following:

Confirm implementation approach: confirming the accountable SMF’s intention to use the implementation periods within 15 working days and providing a redress scheme delivery forecast within six weeks.
Data readiness: finalising a single source of truth for all motor finance products dating back to 2007, completing data profiling and gap analysis and filling gaps where possible. This would collate all customer, loan, commission and complaint data into a single, customer-centric database to inform the eligibility assessment, redress calculation and customer cohorting for redress scheme delivery.
Redress scheme process design and technology enablement: putting in place a detailed redress scheme process design and population cohorting approach. This includes customer and CMC-led journeys, fraud prevention, customer matching and verification criteria, and payment processing. Lenders can consider the use of technology to enable a straight through data-led process as much as possible, enhancing customer experience, operational efficiency and outcome accuracy.
Operational readiness: forecasting operational requirements for managing the redress scheme, considering both opt-in and opt out population cohorts, including roles and skills requirements, scalability, offshore vs onshore options, training and stand up of the operation.
Redress calculation readiness: building a redress calculator capable of handling multiple caps, product variations (e.g. early settlements), logic to identify appropriate calculation methodology, and the application of interest.
Confirm approach for assurance over delivery: with the requirement for a Senior Manager to approve their firm’s approach and to provide attestations on the firm’s readiness for the schemes, lenders should have robust controls, quality oversight and independent testing arrangements in place to be able to demonstrate their scheme is delivering good customer outcomes in compliance with the scheme rules.

Manage existing and new inbound complaints

Lenders need to continue to manage inbound commission complaints, with the risk that volumes increase on the announcement of the scheme. The FCA and consumer champions continue to be clear that people who complain now will be compensated sooner.

Lenders may want to increase their capacity to accurately triage and respond to these complaints. Where automation has been introduced to respond to complaints, lenders may want to consider any updates required to reflect the latest developments and templates.

Once the pause has been lifted on 31 May 2026, lenders will need to quickly respond to paused complaints where the scheme rules do not apply.

Lenders should continue to capture all complaints into a structured data format, alongside associated loan and commission, to support segmentation into appropriate outcomes and customer engagement model.

Scenario modelling and provision impact assessment

Lenders should consider the impact of the final rules on scenario modelling and provisions for potential redress, including changes to eligibility, redress (including compensatory interest changes), scenario mix and weighting, and the approach updating provisions.

How can KPMG in the UK help?

KPMG offers multi-disciplinary support across Consulting, Legal and Managed Services to help firms respond to the operational, regulatory and delivery challenges arising from the motor finance redress scheme.

We are already supporting clients across the market on areas such as customer journey design, technology tools and customer portals to support delivery, redress calculator build and validation, programme mobilisation and delivery support, readiness assessment and broader regulatory interpretation and implementation.

We can also support firms over the implementation period with independent validation of their readiness to deliver the scheme, including the practical readiness of systems, controls and delivery governance.

In addition, we can support with scalable operational delivery through our managed services capability, combining specialist resource, and technology enablers to help firms deliver remediation activity.