Policy Statement 26/3– Motor Finance Consumer Redress Scheme

This briefing considers the Financial Conduct Authority’s Motor Finance Consumer Redress Scheme Policy Statement 26/3 published on 30 March 2026.¹

On 7 October 2025, the Financial Conduct Authority (“FCA”) published its Consultation Paper (“CP25/27”) on a proposed motor finance consumer redress scheme.² The consultation period on the proposed scheme concluded on 12 December 2026. On 30 March 2026, the FCA published Policy Statement 26/3 (“PS26/3”, the “Scheme”) containing the FCA’s findings from the consultation process and the rules governing the Scheme.

What triggers liability under the Scheme (PS26/3)?

The Scheme will apply if any of three relevant arrangements are present which were not adequately disclosed to the customer (subject to exceptions considered below). If none of the below factors were present, then lenders should determine that there is no unfair relationship

• Discretionary Commission Arrangement (“DCA”) – being where the broker had discretion to set or influence the interest rate or other key pricing terms to increase or reduce the commission they received (no change to CP25/27);
• High (or Very High) commission arrangement – considered further below.
• Commercial tie – where there is an agreement which obliged the broker to introduce customers exclusively to that lender or required a broker to give the lender the opportunity to make an offer before approaching others. 

How do you calculate redress under the Scheme (PS26/3)?

The Scheme sets out three remedy calculations:

• The commission repayment remedy – a repayment of all commission in connection with the agreement plus compensatory interest;
• The APR adjustment remedy – for Scheme 1 complaints, lenders are to apply a 21% average APR adjustment and, for Scheme 2 complaints, lenders are to apply a 17% average APR difference to the APR actually paid by the customer to produce a “market adjusted APR”. The difference between each payment under the actual agreement compared to the amount which would have been paid using the market-adjusted APR then reflects the overpayment. Compensatory interest is to be calculated on each overpayment.
• The hybrid remedy – this approach averages the commission repayment remedy and the APR adjustment remedy by adding those two amounts together and dividing by 2. 

The FCA sets out two different approaches to redress, depending on the presumed unfairness.

• Very high commission cases: in circumstances similar to Johnson, where there is a “very high” commission arrangement (being equal or greater than 50% of the total cost of credit and 22.5% of the loan amount) AND either a tied arrangement or a DCA (or both), the FCA concludes that the appropriate remedy is to repay all commission paid plus compensatory interest.
• In all other cases where redress is payable: the FCA proposes that the hybrid remedy is used.  

Three caps are now applied by the FCA on the hybrid remedy. These caps are considered further below.

What has changed following the consultation process?

A brief summary of the key changes which have been made by the FCA between CP25/27 and PS26/3 are set out below.

Two-Scheme Structure – The single scheme proposed in CP25/27 has been replaced by two separate schemes (each with its own legal instrument):

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

Implementation Periods Introduced – CP25/27 proposed that the Scheme start the day after publication with no implementation period. PS26/3 introduces Implementation Periods of 5 months for Scheme 1; and 3 months for Scheme 2. Contact timelines now run from the end of the relevant Implementation Period.

High Commission Threshold Increased – The threshold for a high commission arrangement was raised from 35% of the total cost of credit (“TCC”) / 10% of the total amount of credit (“TC”) to 39% of the TCC / 10% of the TC. The FCA adopted an outlier-based approach, identifying 39%/10% as corresponding to approximately the 85th percentile of the market.

De Minimis Commission Threshold Introduced – CP25/27 did not propose a de minimis threshold. PS26/3 introduces commission thresholds of £120 for Scheme 1 and £150 for Scheme 2 below which no redress will be due.

New Exceptions to Relevant Arrangements – PS26/3 introduces four exceptions: 

• De minimis commission (considered above);
• Zero APR agreements;
• Where there is a DCA but the Broker selected the lowest interest rate available; and
• Captive/white label lenders with a franchised dealer (relevant to Tied Arrangements).

Expanded Commission Repayment Remedy – The Commission Repayment Remedy (Johnson-type remedy) now also applies where there is (i) a very high commission arrangement; and (ii) a DCA, and not only where there is a very high commission arrangement and a Tied Arrangement. 

Differentiated APR Adjustment – CP25/27 proposed a uniform 17% APR adjustment for all cases. PS26/3 differentiates by Scheme: (i) 17% for Scheme 2; and (ii) 21% for Scheme 1 complaints, reflecting the FCA’s view that there is evidence that consumer harm was greater in earlier years when more harmful DCA models and higher APRs were prevalent.

Three Caps on the Hybrid Remedy – PS26/3 introduces three new caps on the Hybrid Remedy: 

• 90% of commission plus interest;
• Adjusted realised total cost of credit cap (using the 5th percentile non-zero APR); and
• Unadjusted realised total cost of credit cap. The APR Adjustment Remedy no longer acts as a minimum floor. Where the consumer's APR is at or below the 5th percentile, redress defaults to nil. These caps were not proposed in CP25/27. 

Compensatory Interest – Rounding removed and a 3% floor introduced, meaning the minimum rate of Compensatory Interest in any year is 3%. The Consumer rebuttal mechanism (allowing consumers to argue for a higher rate) has been removed.

Set-Off Narrowed – Set-off is now limited to undisputed arrears or default sums on the specific Motor Finance Agreement to which the redress relates. CP25/27 had proposed that set-off could extend to monies owed under any regulated consumer credit agreement with the firm. Consumers can object where they have priority debts.

Removal of Opt-Out Process for Complainants – Consumers who have already complained no longer receive an opt-out letter. Instead, they receive a Provisional Redress Decision or Redress Determination directly. Consumers can still opt out at any stage.

Removal of Recorded Delivery Requirement – The requirement for all Scheme communications to be sent by recorded delivery post has been removed. Firms can use digital channels and a range of communication methods, subject to Consumer Duty alignment and fraud mitigation safeguards including FCA factsheets and unique reference numbers.

New Rebuttal for Non-Operative Tied Arrangements – A new rebuttal has been introduced allowing firms to rebut the presumption of unfairness where a Tied Arrangement was present but was not operated in practice.

Limitation – For cases involving only a high commission arrangement (i.e. no DCA or Tied Arrangement) ending before 26 March 2020, where the firm can evidence that commission being payable was clearly and prominently disclosed (even if the amount was not), the firm may exclude the case on limitation grounds. 

Settlement Offer Framework Revised – Settlement offers must now always reflect at least the maximum redress a consumer would receive under the Scheme and are issued as Provisional Redress Decisions rather than informal offers. Where firms do not wish to undertake the full redress calculation, settlement offers can be made at commission plus interest (for very high commission cases), or at any of the caps for the hybrid remedy for other cases.  If an offer is accepted in full and final settlement, a consumer has no further referral rights to the FOS. 

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[1] https://www.fca.org.uk/publication/policy/ps26-3.pdf
[2] https://www.fca.org.uk/publication/consultation/cp25-27.pdf