What the motor finance redress scheme means if you’re applying now

The short answer

The scheme does not apply to you. It covers motor finance agreements sold between 2007 and 2024 by firms that were FCA-authorised or previously held an OFT licence. A firm being authorised now sold nothing in that window, so there is nothing to compensate.

What has changed is what a credible application looks like. The FCA has spent two years examining how commission was disclosed in this market and has concluded that disclosure was, in its own assessment, poor across the period. An application from a motor dealer in 2026 lands on a desk where that is the live context.

The practical consequence is simple: be specific about how you will disclose commission, rather than saying you will comply with the rules.

What the scheme actually is

The FCA confirmed the scheme in Policy Statement PS26/3 on 30 March 2026. It is industry-wide and mandatory, and the regulator expects it to return around £7.5 billion to consumers, with most cases settled by the end of 2027.

It runs in two parts:

• Scheme 2 — agreements from 1 April 2014. Implementation period ended 30 June 2026.
• Scheme 1 — agreements before 1 April 2014. Implementation period ended 31 August 2026.

Consumers who are not contacted by a lender have until 31 August 2027 to bring a claim themselves.

It is worth being clear that this is lender-led. Lenders identify affected customers, calculate redress and pay it. The FCA has said that any subsequent recovery between a lender and a broker is a separate commercial matter that sits outside the scheme entirely.

The three things that make an agreement unfair

The scheme follows the Supreme Court’s reasoning in Johnson v FirstRand, which found an unfair relationship where a large commission and a commercial tie between broker and lender had not been disclosed. Three arrangements are in scope:

• Discretionary commission arrangements — where the broker could influence the interest rate and earn more by setting it higher. Banned by the FCA in January 2021.
• High commission — defined by the FCA as more than 39% of the total cost of credit and 10% of the loan.
• Tied arrangements — a contractual tie between lender and broker that was not made clear to the customer.

Where commission was at least 50% of the total cost of credit and 22.5% of the loan and involved a DCA, a tie, or both, the customer is entitled to the full commission back with interest and no cap.

Some agreements are excluded: commission of £120 or less under Scheme 1 and £150 or less under Scheme 2, zero-APR lending, and loans in the top 0.5% by value, which the FCA judged unsuitable for a mass-market scheme.

Why a new firm has no exposure — and why that matters

If your company was incorporated recently, or has never held a consumer credit permission, there is no historic book to review. You cannot be caught by this.

That is genuinely useful to know, because the noise around the scheme has led some dealers to assume that becoming authorised somehow exposes them to it. It does not. Authorisation applies from the date it is granted.

The one thing worth checking: if your business introduced customers to lenders before 2021 while trading under a different entity, or as an appointed representative, that earlier activity is a separate question from your new application. It does not stop you being authorised, but it is better raised at the outset than discovered later.

What it changes about your application

Two documents in a limited permission application now carry more weight than they did three years ago.

Your financial promotions policy

This is where you set out how finance is presented to customers. The FCA is reading it against a market it has just found wanting on exactly this point. Vague commitments to be “clear, fair and not misleading” restate the rule without saying anything. What helps is being concrete: at what point in the sale the customer is told commission is payable, in what form, and who is responsible for saying it.

Your regulatory business plan

The plan describes how you earn. If commission from finance introductions is part of that, say how much and on what basis. A plan that shows the firm understands its own commission structure reads very differently from one that mentions finance in passing.

The FCA’s published thresholds are useful here in a way they were not before. You can now measure your expected commission against the levels the regulator has defined as high and as exceptionally high, and say plainly where you sit. Most dealers introducing customers to a panel lender at a fixed rate will sit well below both.

What is still unsettled

The scheme was legally challenged on 1 May 2026 by four firms. On 2 July the Upper Tribunal suspended parts of it on terms agreed with the challengers. Firms must comply with every rule that has not been suspended.

That means the detail may still move. Nothing in it changes the position for a new applicant — the exposure was never yours — but anyone telling you today exactly how the scheme will end is guessing.

What to do about it

Nothing urgent, and nothing defensive. If you are applying for authorisation:

• Know what commission you will earn per agreement and on what basis
• Decide at what point in the sale the customer is told about it, and write that into your financial promotions policy rather than leaving it implied
• Keep the record. A firm that can show what it told a customer and when is in a materially different position from one that cannot — which is the whole lesson of the last two years

If you are a motor dealer working out whether you need authorisation at all, our guide to FCA authorisation for car dealers covers the basics, and when a dealer cannot have limited permission covers the three situations that rule it out.

Frequently asked questions