Following our initial update of 30 March 2026, we have now completed a more detailed review of the FCA’s finalised Motor Finance Consumer Redress Scheme (PS26/3) and undertaken our own independent analysis of its terms. We have also reviewed legal commentary, industry reaction and academic analysis published since the scheme was confirmed.
This update has two purposes:
No action is required from you at this stage unless your lender contacts you directly. We will be advising each client individually on the most suitable course of action.
Our last update explained the broad parameters of the scheme. By way of brief recap, the key features are:
12.1 million agreements, 6 April 2007 to 1 November 2024
Average payout £830 per agreement (FCA estimate at 75% uptake)
£7.5 billion
The “hybrid remedy”: an average of commission paid and an estimated APR-based loss figure
17% for agreements from April 2014; 21% for 2007–2014 agreements
Compensatory interest Bank of England base rate + 1% per year; minimum floor of 3%
Caps apply In approximately 1 in 3 cases
Who decides your claim Your lender, subject to FOS review
| Parameter | Detail |
|---|---|
|
Agreements covered |
12.1 million (reduced from 14.2 million originally proposed) |
|
Average payout |
£830 per agreement (up from £700 consulted on) |
|
Total estimated redress |
£7.5 billion (at 75% consumer participation) |
|
How most are paid |
The “hybrid remedy”: an average of commission paid and an estimated APR-based loss figure |
|
APR adjustment used |
17% for agreements from April 2014; 21% for 2007–2014 agreements |
|
Compensatory interest |
Bank of England base rate + 1% per year; minimum floor of 3% |
|
Caps apply |
In approximately 1 in 3 cases |
|
Who decides your claim |
Your lender, subject to FOS review |
On the face of it, this looks like significant progress. However, our analysis tells a more complicated story. The scheme is designed to be efficient and administratively workable at scale — and those priorities have come at a real cost to individual consumers.
Before considering the scheme’s limitations, it is essential to understand who is eligible to participate at all.
The scheme only applies where a consumer was not clearly informed about at least one of the following three arrangements between the lender and the broker (usually the dealer):
This arrangement allowed the broker to adjust the interest rate you paid in order to earn a higher commission.
Defined as commission of at least 39% of the total cost of credit and 10% of the loan value. Agreements where commission fell below these thresholds are not treated as a high commission arrangements under the scheme.
An arrangement giving the lender exclusivity or a right of first refusal over finance applications. This does not apply where the lender can demonstrate there were visible commercial links between the manufacturer and the dealer (for example, where they share the same brand name).
There are certain categories of agreements that are excluded from the scheme entirely.
We want to be direct with you: for a meaningful number of our clients, we believe that accepting the scheme offer without first exploring alternatives would be a mistake. Below we explain why, in plain terms.
The FCA’s “hybrid remedy” applies a single formula to millions of agreements over 17 years, ignoring the specific facts of your case. It doesn’t consider what commission was actually earned, whether it drove up your rate, or your true financial loss. Instead, it applies a standardised 17% or 21% rate reduction, depending on when your agreement was taken out, averages this with the commission, and compares the result to a cap.
The outcome is blunt:
Two consumers with very different levels of harm can receive similar compensation. A court would assess the facts individually; the scheme, by design, does not.
If your harm was above average—such as high commission, strong incentives to inflate your rate, or a long agreement—the formula is likely to understate what you’re owed.
Following the hybrid remedy, compensation will be capped in 1 in 3 cases.— This means the actual amount paid is reduced below even what the formula would otherwise produce.
The cap operates as the lower of:
If your agreement falls within the capped category, you will receive less than the formula suggests you are owed, regardless of the strength of your case. A court is not bound by any such cap. It has a broad discretion under the Consumer Credit Act to make whatever order it considers just — which could include the full commission repaid, plus interest, without an artificial ceiling being imposed.
The scheme has a fundamental flaw: the lender both assesses and decides your claim, effectively “marking its own homework.” While you can challenge this through the FOS, its role is limited to checking whether the rules were applied correctly—it cannot award more than the scheme allows. By contrast, a court can fully examine the evidence and grant any remedy that is just.
The FCA originally proposed covering 14.2 million agreements. The final scheme covers 12.1 million — a reduction of over 2 million agreements. This narrowing occurred largely in response to lobbying from lenders and industry bodies.
Several groups of consumers who might have had valid claims have been excluded from the scheme entirely, including:
Exclusion from the scheme does not mean you have no claim You can still pursue claims through the courts.
We will assess your individual eligibility as part of our case-by-case review.
Understanding whether you are in the scheme at all is the essential first step before considering whether its terms are fair to you.
The FCA has been explicit that a key objective of the scheme is to provide lenders with “certainty and finality” and to support the “long-term availability of competitively priced motor finance.” These are legitimate regulatory concerns. But they are not the same as your interests as a consumer.
The scheme’s design — including the hybrid formula, the caps, the fixed interest rate and the lender-led determination process — reflects a compromise between consumer protection and market stability. That compromise was calibrated with the health of the lending industry in mind.
Consumers who suffered real harm above the scheme average will bear the cost of that compromise.
We have conducted a detailed review of the scheme rules as published in PS26/3 and have identified a number of specific concerns. These go beyond our general assessment of the scheme’s limitations and reflect issues that, in our view, are legally and structurally significant.
We set these out below. Where necessary, we have explained legal concepts in plain language, but we want you to understand that these are substantive concerns, not minor technical points.
Hear what our client, Zada, has to say about her claim and how we helped her!
Hear what our client, Zada, has to say about her claim and how we helped her!
The FCA estimates consumer loss using fixed APR reductions of 17% or 21%, treating the difference as overpayment. We are concerned that the FCA have adopted these figures without a sufficient evidential foundation for doing so. This forms half of the “hybrid remedy,” but it is based on broad market averages not what any individual would have paid.
The FCA has acknowledged that the 17% figure likely understates loss for pre-April 2014 agreements, yet instead of gathering better evidence, it applied a 21% rate as a “bounded regulatory judgment” effectively an informed estimate rather than a data-driven conclusion.
This raises concerns about fairness and legal robustness: a compensation scheme should be grounded in solid evidence of actual harm, not approximations known to be imperfect.
The issue is compounded by applying the same APR-based method to non-discretionary commission cases—where rates couldn’t be varied—purely for simplicity, despite the different underlying circumstances.
The FCA is required by section 1D of the Financial Services and Markets Act 2000 to protect and enhance the “integrity” of the UK financial system and theFCA has explicitly stated that market integrity was a key consideration in calibrating the scheme.
However, when we look at how the FCA has interpreted “market integrity” in practice, the emphasis is overwhelmingly on lender-side concerns: the financial viability of lenders, their ability to continue operating, the availability of motor finance products in the future, and competitive stability across the industry.
These are important considerations, and we do not dismiss them. But we are concerned that the FCA has treated market integrity as largely synonymous with industry stability, while giving significantly less weight to other aspects of market integrity that are equally important, including:
In our view, the FCA has prioritised one aspect of market integrity — lender stability — while underweighting others. This affects the scheme’s design in ways that are directly harmful to consumers, including the formula, the caps, and the fixed interest rate.
The Supreme Court’s decision in Johnson v FirstRand Bank (August 2025) confirmed that hidden commission arrangements can make motor finance agreements unfair and provided for redress to be awarded based on the specific facts of that case.
Our concern is that the FCA has treated Johnson as a benchmark for compensation. Full redress of all commission paid is reserved for a small group of consumers (90,000) whose cases closely match those facts—particularly involving undisclosed discretionary arrangements and very high commission (at least 50% of total credit cost and 22.5% of the loan).
In effect, one case has become a gatekeeper for the highest remedy, even though the law does not require claims to mirror it. As a result, many consumers with strong claims are limited to the scheme’s formula, despite potentially suffering greater loss. Courts, by contrast, assess each case on its own facts and are not bound by these constraints.
Compensatory interest serves a specific legal purpose and is awarded to compensate an individual for being deprived of the use of the money they were entitled to. The rate of interest should, in principle, reflect the actual cost to you of being deprived of that money.
The FCA has chosen to apply a single standardised rate — Bank of England base rate plus 1%, with a 3% minimum floor — to every consumer under the scheme. This rate cannot be challenged, even where a consumer can show that their actual loss was significantly higher.
Consider what this means in practice. If you had to borrow money to cover the overcharge — perhaps you used a credit card or took an additional loan — you may have been paying a much higher rate of interest on that borrowing than 3%. Or if you were a vulnerable consumer who was particularly dependent on being able to use that money for essential needs, the impact of being without it was greater than any standardised rate can capture.
The scheme does not recognise these individual circumstances. The FCA acknowledged this but concluded that operational simplicity was the overriding priority. We understand the administrative challenges of running a scheme of this size. But the legal principle behind compensatory interest is that it should compensate — not provide a fixed payment that happens to be convenient to administer.
Courts award interest at a rate that reflects the actual loss to the individual. This is another area where, for certain clients, court proceedings are likely to produce a more genuinely compensatory outcome. In January this year our client was awarded the repayment of the full amount of commission plus interest at 8%. Interest at this rate is something that would not have been awarded under the scheme.
The FCA estimates consumer loss using fixed APR reductions of 17% or 21%, treating the difference as overpayment. We are concerned that the FCA have adopted these figures without a sufficient evidential foundation for doing so. This forms half of the “hybrid remedy,” but it is based on broad market averages not what any individual would have paid.
The FCA has acknowledged that the 17% figure likely understates loss for pre-April 2014 agreements, yet instead of gathering better evidence, it applied a 21% rate as a “bounded regulatory judgment” effectively an informed estimate rather than a data-driven conclusion.
This raises concerns about fairness and legal robustness: a compensation scheme should be grounded in solid evidence of actual harm, not approximations known to be imperfect.
The issue is compounded by applying the same APR-based method to non-discretionary commission cases—where rates couldn’t be varied—purely for simplicity, despite the different underlying circumstances.
The FCA is required by section 1D of the Financial Services and Markets Act 2000 to protect and enhance the “integrity” of the UK financial system and theFCA has explicitly stated that market integrity was a key consideration in calibrating the scheme.
However, when we look at how the FCA has interpreted “market integrity” in practice, the emphasis is overwhelmingly on lender-side concerns: the financial viability of lenders, their ability to continue operating, the availability of motor finance products in the future, and competitive stability across the industry.
These are important considerations, and we do not dismiss them. But we are concerned that the FCA has treated market integrity as largely synonymous with industry stability, while giving significantly less weight to other aspects of market integrity that are equally important, including:
In our view, the FCA has prioritised one aspect of market integrity — lender stability — while underweighting others. This affects the scheme’s design in ways that are directly harmful to consumers, including the formula, the caps, and the fixed interest rate.
The Supreme Court’s decision in Johnson v FirstRand Bank (August 2025) confirmed that hidden commission arrangements can make motor finance agreements unfair and provided for redress to be awarded based on the specific facts of that case.
Our concern is that the FCA has treated Johnson as a benchmark for compensation. Full redress of all commission paid is reserved for a small group of consumers (90,000) whose cases closely match those facts—particularly involving undisclosed discretionary arrangements and very high commission (at least 50% of total credit cost and 22.5% of the loan).
In effect, one case has become a gatekeeper for the highest remedy, even though the law does not require claims to mirror it. As a result, many consumers with strong claims are limited to the scheme’s formula, despite potentially suffering greater loss. Courts, by contrast, assess each case on its own facts and are not bound by these constraints.
Compensatory interest serves a specific legal purpose and is awarded to compensate an individual for being deprived of the use of the money they were entitled to. The rate of interest should, in principle, reflect the actual cost to you of being deprived of that money.
The FCA has chosen to apply a single standardised rate — Bank of England base rate plus 1%, with a 3% minimum floor — to every consumer under the scheme. This rate cannot be challenged, even where a consumer can show that their actual loss was significantly higher.
Consider what this means in practice. If you had to borrow money to cover the overcharge — perhaps you used a credit card or took an additional loan — you may have been paying a much higher rate of interest on that borrowing than 3%. Or if you were a vulnerable consumer who was particularly dependent on being able to use that money for essential needs, the impact of being without it was greater than any standardised rate can capture.
The scheme does not recognise these individual circumstances. The FCA acknowledged this but concluded that operational simplicity was the overriding priority. We understand the administrative challenges of running a scheme of this size. But the legal principle behind compensatory interest is that it should compensate — not provide a fixed payment that happens to be convenient to administer.
Courts award interest at a rate that reflects the actual loss to the individual. This is another area where, for certain clients, court proceedings are likely to produce a more genuinely compensatory outcome. In January this year our client was awarded the repayment of the full amount of commission plus interest at 8%. Interest at this rate is something that would not have been awarded under the scheme.
We said in our previous update that court claims are not right for every client, and we repeat that now. Litigation takes time and involves uncertainty. Our purpose in raising it is not to alarm you, but to ensure you understand that accepting the scheme offer is not automatically the safest or most financially sensible choice.
Courts have the following significant advantages over the scheme:
Section 140B of the Consumer Credit Act gives courts an extremely broad power to make whatever order they consider just and equitable. They are not constrained by averaging formulas, caps, or fixed interest rates.
A court looks at what actually happened: the size of the commission, the nature of the arrangement, the extent of the non-disclosure, and the impact on you specifically.
Courts award interest that is genuinely designed to compensate — not a standardised rate chosen for administrative convenience.
For cases involving high commission, strong evidence of non-disclosure, and substantial periods of overpayment, a court award is likely to exceed what the scheme formula would produce.
The court is an independent decision-maker. The lender does not assess its own liability.
We are solicitors, not a claims management company.
We are authorised to conduct litigation on your behalf, and our assessment of whether a court claim is appropriate will be based on the specific facts and merits of your case.
We will not advise you to litigate unless we believe it is in your interests to do so.
We are now conducting an individual assessment of each client’s case in light of the final scheme rules and the concerns we have identified. That assessment will consider:
At this stage, no action is required from you.
If you accept a compensation offer from your lender, whether through the redress scheme or otherwise, your claim will be treated as closed. You will not be able to reopen it.
Lenders will seek to settle claims efficiently for themselves. Under the scheme, they control the initial determination. The offer they make may be calculated at the lower end of what the rules permit. Without independent advice, you may not know this.
Do not accept any offer, sign any documents, or click any acceptance links sent by your lender.
Do not respond to the lender confirming or rejecting their offer before speaking to us.
Send us a copy of any correspondence received. We will review the offer and advise on the best course of action.
Some lenders may not make it clear that accepting a settlement offer could leave you liable to pay our legal fees from any compensation received, without having benefited from our full advice. If you have inadvertently registered with another claims management company or law firm, including through comparison websites or social media, please let us know immediately. Only one firm can act for you on a single claim.
We want to be clear: you are under no obligation to continue instructing us, and the decision to proceed is entirely yours. However, to ensure you have a complete and comprehensive understanding of your position, we are providing this formal clarification regarding our terms of engagement, which may have been less detailed in our previous communication.
Before making any decision to end your agreement, please be aware of the following:
Courmacs Legal reserves the right to charge for professional work carried out on your behalf, in line with the agreement you signed with us at the outset of the claim and in accordance with the specific terms you agreed to at that time.
If you have instructed or choose to instruct another legal firm or Claims Management Company (CMC), be aware they may also charge a cancellation fee or a fee based on the work they have already performed. You should check their terms carefully before ending any agreement with them.
If you have any questions regarding potential costs, please contact us immediately before making any final decision. We will provide a full explanation of the work completed to date and clearly outline how any charges would be calculated before any invoice is raised.
It is designed for mass efficiency — not to maximise outcomes for individual consumers.
Consumers who suffered above-average harm are likely to receive less than they are truly owed.
artificially reducing awards even where wrongdoing is clear.
The FOS can only check whether the lender followed the scheme rules — not whether you deserved more.
the evidential basis for the APR formula; the narrow conception of market integrity; excessive reliance on the Johnson decision; and a standardised interest rate that fails to reflect individual loss.
We will advise you individually on whether this is appropriate for your case.
If you receive any correspondence from your lender, another law firm, or a claims management company, or if you have any questions about your claim, please contact us immediately.
Please note we are currently experiencing a high volume of enquiries. We aim to respond within 5 working days.
We are SRA-regulated solicitors. We are bound by duties of care and confidentiality that go beyond the obligations of a claims management company. We are here to help.
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