Britain’s financial regulator has today confirmed the details of a formal redress scheme to compensate motor finance customers who were treated unfairly by lenders. Published on 30 March 2026, the announcement brings to a close a protracted period of regulatory uncertainty and sets out clear parameters for who will be compensated, how much they may receive, and when payments are expected to be made.
The Legal and Regulatory Background
The scheme follows judicial findings that motor finance lenders breached their legal obligations by failing to disclose material information to customers, specifically the nature and extent of commission arrangements with brokers, most commonly car dealerships. Pivotal to the FCA’s framework was the Supreme Court’s ruling in the Johnson case, which now serves as the reference point for the highest tier of compensation.
Over 1,000 consultation responses were received before the regulator finalised its approach. Significant divergence of opinion on key design questions made the process a contested one, and meaningful adjustments followed. Eligible agreements have been reduced from 14.2 million to 12.1 million, the estimated redress bill from £8.2 billion to £7.5 billion, and overall costs to firms from £11 billion to £9.1 billion once administrative and non-redress expenses are included.
Scope and Eligibility
The scheme covers motor finance agreements entered into between 6 April 2007 and 1 November 2024, where commission was payable by the lender to the broker. The FCA has implemented two parallel schemes: one covering the period from April 2007 to March 2014, and a second from April 2014 onwards. This structural separation is designed to insulate the post-2014 scheme from any legal challenge to the earlier period, preserving the flow of compensation to the majority of affected consumers.
Consumers will be eligible for redress if they were not adequately informed about at least one of three types of arrangement between the lender and the broker:
- a discretionary commission arrangement (DCA), which permitted the broker to adjust the customer’s interest rate in order to earn a higher commission;
- a high commission arrangement, defined as at least 39% of the total cost of credit and 10% of the loan value;
- or a contractual tie granting the lender exclusivity or a right of first refusal over the broker’s business.
Certain cases are explicitly carved out. Agreements where the commission was £120 or less (or £150 or less from April 2014) will not attract redress, on the grounds that such modest sums are unlikely to have influenced either the broker’s conduct or the consumer’s decision.
Agreements with zero APR are similarly excluded. Where a lender can demonstrate that visible commercial links between manufacturer and dealer were apparent, a contractual tie alone will not trigger a compensation entitlement.
How Compensation Will Be Calculated
The scheme operates across two tiers. Approximately 90,000 consumers whose circumstances closely mirror those in the Johnson case, involving an undisclosed contractual tie or DCA alongside very high commission of at least 50% of the total cost of credit, will receive the full commission amount plus interest.
For all remaining eligible cases, the FCA has adopted a hybrid remedy: the average of estimated loss and the commission paid, with interest added.
Estimated loss has been calculated by reference to the difference in APR between DCA loans and equivalent flat-fee arrangements. The FCA’s analysis applies an APR adjustment of 17% for agreements from April 2014 onwards and a slightly higher adjustment of 21% for pre-2014 agreements, reflecting evidence that more harmful DCA practices were more prevalent and the financial impact greater in the earlier period.
In approximately one in three cases, compensation will be subject to a cap. The FCA has taken the position that consumers should not be placed in a better position than they would have occupied had they been treated fairly, nor should they receive more than those who suffered the most serious misconduct.
The cap mechanism compares compensation against 90% of the commission plus interest, the total cost of credit adjusted for the cheapest 5% of market rates at the time, and the actual total cost of credit calculated on a simplified basis.
Interest on all redress payments will be calculated at the Bank of England base rate plus 1% per annum, with a floor of 3% for any given year.
Operational Timeline
Firms will be permitted an implementation period to prepare their systems and processes. The deadline for readiness is 30 June 2026 for loans originated from April 2014, and 31 August 2026 for earlier agreements.
Once those deadlines pass, lenders will have three months to contact consumers who have already complained and communicate whether redress is owed. For drivers who have not raised a concern, lenders will have six months to make proactive contact where the individual is potentially owed money.
The FCA has streamlined the notification requirements. Firms will not be required to contact all customers, only those who are potentially owed compensation or who are approaching the limitation period.
Recorded delivery is no longer mandated. The regulator estimates that these changes reduce the administrative cost to firms by more than 40%. The FCA expects millions of consumers to receive compensation within 2026, with most remaining cases resolved by the end of 2027.
Drivers who are not contacted by their lender retain the right to complain directly to the firm until 31 August 2027.
Find Out Whether You Are Eligible for Compensation
The FCA’s redress scheme represents one of the most significant consumer compensation exercises in the UK’s financial services history. If you took out a motor finance agreement between April 2007 and November 2024, there is a reasonable prospect that your agreement falls within the scheme’s scope.
The simplest way to establish your position is to use our agreement finder tool.
You are under no obligation to engage a claims management company or solicitor to participate in the scheme. That said, understanding your entitlement now puts you in the strongest position to act promptly when the initiative opens.
The scheme will begin processing claims later this year. Do not wait to be contacted. Check your eligibility today.
