FCA Motor Finance Redress Scheme: What Your Firm Needs to Know Before the 2026 Deadline

The Financial Conduct Authority has proposed one of the most significant consumer redress schemes in recent UK financial services history. With potential industry costs reaching £8.2 billion, the Motor Finance Consumer Redress Scheme represents a watershed moment for lenders, brokers, and intermediaries across the consumer credit sector.

On 7 October 2025, the FCA published Consultation Paper CP25/27, setting out proposals for an industry-wide compensation scheme covering motor finance customers who may have been treated unfairly between 2007 and 2024. This follows the Supreme Court's landmark ruling on 1 August 2025, which clarified requirements around commission disclosure in motor finance arrangements.

For firms operating in the motor finance sector, understanding the scope, timelines, and implications of this scheme is now business-critical. This article examines the key elements of the FCA's proposals and what your firm must do to prepare.

Background: How We Got Here

The motor finance sector has been under regulatory scrutiny for several years, with concerns centring on the fairness and transparency of commission arrangements between lenders and brokers. These arrangements, particularly Discretionary Commission Arrangements (DCAs), allowed brokers to adjust interest rates to increase their commission payments—often without customers' knowledge or informed consent.

The Supreme Court's August 2025 decision effectively confirmed that such arrangements breached fiduciary duties owed to consumers, creating a clear legal basis for widespread consumer complaints and potential compensation claims.

The volume of complaints surged following the ruling, prompting the FCA to intervene with proposals for a structured, industry-wide approach to redress rather than allowing the situation to develop through individual complaint handling and litigation.

Key Elements of the Proposed Scheme

Scope and Eligibility

The proposed redress scheme covers motor finance agreements entered into between 1 January 2007 and 28 January 2024. This encompasses:

Hire purchase agreements
Conditional sale agreements
Personal contract purchase (PCP) agreements

Importantly, operating leases and finance leases are explicitly excluded from the scheme. The FCA announced on 5 December 2025 that firms must provide final responses to complaints relating to leasing agreements from that date onwards, rather than benefiting from the extended complaint handling deadline.

The scheme applies to customers who can demonstrate they were affected by unfair commission arrangements, particularly where:

Discretionary commission arrangements were in place
Customers were not adequately informed about commission payments
The commission structure created conflicts of interest that disadvantaged consumers

The £8.2 Billion Question

The FCA's impact assessment suggests total redress costs could reach up to £8.2 billion across the industry. This translates to an average of approximately £700 per affected agreement, though actual compensation amounts will vary significantly based on individual circumstances.

These figures represent a substantial financial exposure for the sector. For context, this would rank among the largest consumer redress schemes in UK financial services history, comparable in scale to the Payment Protection Insurance (PPI) redress programme that ultimately cost the banking sector over £38 billion.

The estimate is based on assumptions about:

The proportion of agreements potentially affected by unfair practices
Average compensation amounts per agreement
Administrative and operational costs of running the scheme
The number of customers who will ultimately claim

Critical Deadlines and Timelines

Understanding and adhering to the scheme's timelines is essential for affected firms:

| Milestone | Date | Significance | |-----------|------|--------------| | CP25/27 Published | 7 October 2025 | FCA consultation opens | | Consultation Closes | 18 November 2025 | Deadline for industry responses | | Leasing Final Responses | From 5 December 2025 | Normal complaint handling resumes for leases | | FCA Decision | By 31 March 2026 | Final scheme rules published | | Complaint Handling Deadline | 31 May 2026 | Extended deadline for non-leasing complaints |

The extension of complaint handling deadlines to 31 May 2026 provides firms with breathing room to prepare systems and processes, but it also means customers have more time to submit claims. Firms should expect complaint volumes to remain elevated throughout this period.

The FCA's decision by the end of March 2026 will provide clarity on the final form of the scheme, including calculation methodologies, eligibility criteria, and operational requirements. However, firms cannot afford to wait until then to begin preparations.

What This Means for Your Firm

Immediate Financial Implications

If your firm has exposure to motor finance activities during the relevant period, you must consider the potential financial impact:

Capital and Provisioning: Firms should work with their finance teams and auditors to assess potential redress liabilities and ensure adequate provisions are in place. This may affect regulatory capital requirements for authorized firms.

Cash Flow Planning: Even with staggered payment arrangements, the scheme will create significant cash flow demands. Firms should model various scenarios and ensure access to adequate liquidity.

Insurance and Indemnities: Review insurance policies and contractual indemnities with network partners, lenders, or other parties who may share liability.

Operational Readiness

The volume and complexity of complaints expected under the scheme demand significant operational preparation:

Complaints Handling Capacity: Scale up your complaints handling function to manage potentially thousands of claims. This includes staffing, training, and technology systems.

Data and Records: Identify, retrieve, and organize historical records for agreements dating back to 2007. Many firms will face challenges with legacy systems, archived data, and incomplete records.

Calculation Methodologies: Develop and document clear, consistent methodologies for calculating redress in line with FCA expectations. This must be capable of audit and regulatory scrutiny.

Customer Communications: Prepare proactive and reactive communication strategies, including website content, letter templates, and phone scripts.

Governance and Oversight

Senior management and boards must maintain clear oversight of the firm's response to the scheme:

Establish dedicated project governance with clear accountabilities
Regular reporting to the board on exposures, complaint volumes, and operational readiness
Ensure adequate resources are allocated to the programme
Consider reputational risks and stakeholder communications

Regulatory and Compliance Considerations

FCA Expectations

The FCA will expect firms to approach this scheme with the principles of Treating Customers Fairly (TCF) at the forefront. This means:

Proactive identification of affected customers where possible
Fair and consistent application of redress calculations
Clear, accessible customer communications
Efficient complaints handling that meets regulatory timeframes
Senior management accountability for the firm's response

Firms that fail to meet these expectations risk not only financial penalties but also potential restrictions on permissions or other supervisory interventions.

Consumer Duty Alignment

For authorized firms, the scheme intersects significantly with Consumer Duty obligations. Your approach to redress must demonstrate:

Good customer outcomes as the priority
Communications that enable customers to make informed decisions
Products and services that meet customer needs
Fair value consideration
Appropriate consumer support

Record-Keeping and Evidence

Robust record-keeping will be essential throughout the scheme. Maintain comprehensive records of:

Complaint receipts and acknowledgements
Investigation processes and findings
Redress calculations and methodologies
Customer communications and responses
Management information and reporting
Quality assurance and oversight activities

These records will be critical for regulatory reviews, internal audits, and potential dispute resolution processes.

Preparing Your Firm: An Action Checklist

To navigate the Motor Finance Consumer Redress Scheme effectively, firms should take the following steps:

Immediate Actions (October-December 2025)

[ ] Conduct exposure assessment: Quantify your firm's potential liability based on historical motor finance activities
[ ] Engage senior leadership: Ensure board and senior management understand the scale and implications
[ ] Establish project governance: Create dedicated project team with clear roles and responsibilities
[ ] Review financial resilience: Assess capital, provisions, and liquidity requirements
[ ] Audit data availability: Identify what records exist for 2007-2024 agreements and gaps in data
[ ] Benchmark current complaints capacity: Understand your baseline capability and required scaling
[ ] Engage external advisers: Consider whether FCA compliance consultants and legal advisers are needed

Pre-Scheme Implementation (January-March 2026)

[ ] Develop redress calculation methodology: Create clear, documented approach to calculating compensation
[ ] Scale operational capacity: Recruit, train, and onboard additional complaints handling resources
[ ] Implement technology solutions: Deploy or enhance complaints management systems
[ ] Prepare customer communications: Draft templates for letters, emails, website content, and scripts
[ ] Establish quality assurance: Create oversight mechanisms to ensure consistency and fairness
[ ] Review insurance and indemnities: Understand what costs may be recoverable

Ongoing Requirements (From April 2026)

[ ] Implement final scheme requirements: Adapt processes to reflect final FCA rules
[ ] Monitor complaint volumes: Track incoming claims against projections
[ ] Report to management and regulators: Provide regular updates on progress and issues
[ ] Maintain consistent standards: Ensure quality and fairness across all claims
[ ] Respond to individual cases: Meet regulatory timeframes for final responses
[ ] Document lessons learned: Capture insights to prevent future issues

The Wider Implications for Consumer Credit

The Motor Finance Consumer Redress Scheme sends clear signals about regulatory expectations across the consumer credit sector. Firms operating in other areas of consumer credit should take note of several important themes:

Commission Transparency: The principle that customers must be fully informed about commission arrangements and potential conflicts of interest applies across all credit products, not just motor finance.

Historical Remediation: Regulators are willing to look back over extended periods (in this case, 17 years) to address systemic unfairness.

Proactive Regulation: Rather than allowing issues to resolve through individual complaints and litigation, regulators may intervene with structured industry-wide schemes.

Customer Outcomes Focus: The emphasis on fair customer outcomes, particularly under Consumer Duty, will only intensify across all financial services.

Getting Ahead of the Curve

While the Motor Finance Consumer Redress Scheme presents significant challenges, it also offers an opportunity for firms to demonstrate their commitment to fair treatment of customers and regulatory compliance.

Firms that approach this proactively—with adequate resources, clear governance, and a genuine focus on customer outcomes—will not only meet their regulatory obligations but potentially strengthen their reputation and competitive position.

Conversely, those that approach the scheme reactively, with minimal investment or half-hearted compliance, risk regulatory censure, customer complaints escalations, and reputational damage that could have lasting business impact.

How MEMA Can Help

At MEMA Consultants, we have extensive experience supporting firms through complex regulatory change and consumer redress programmes. Our team can assist with:

Exposure assessments and financial modelling to help you understand potential liabilities
Operational readiness reviews to identify gaps in your complaints handling capability
Redress methodology development to ensure fair, consistent, and FCA-compliant calculations
Training and competence programmes for your complaints handling teams
Project management support to coordinate your firm's response across multiple workstreams
Regulatory liaison to navigate FCA expectations and requirements

We work with firms across the consumer credit spectrum, from major lenders to broker networks, providing tailored support that reflects your specific circumstances and risk profile.

Take Action Now

With the FCA's final decision due by the end of March 2026 and complaint handling deadlines extending to 31 May 2026, time is of the essence. The firms that begin preparation now will be best positioned to manage the scheme effectively, minimize regulatory risk, and protect their customer relationships.

Don't wait until the final rules are published to begin planning. The earlier you start, the more options you have and the better prepared you'll be.

Contact MEMA Consultants today to discuss how we can support your firm through the Motor Finance Consumer Redress Scheme. Our expert team is ready to help you navigate this complex regulatory landscape with confidence.

Visit our FCA compliance consultants page to learn more about our services, or get in touch directly to arrange a consultation with one of our regulatory specialists.

This article is for informational purposes only and does not constitute legal or regulatory advice. Firms should seek appropriate professional advice based on their specific circumstances.