The FCA's motor finance redress scheme, confirmed through Policy Statement PS26/3, represents one of the most significant regulatory interventions in UK consumer finance in years. It follows years of investigation into the practice of discretionary commission arrangements (DCAs), where car dealerships were able to set higher interest rates on finance agreements to earn larger commissions, often without telling customers.
For millions of UK drivers who took out PCP or HP finance before January 2021, the scheme creates a potential route to compensation. But the process is not automatic, the timeline is not guaranteed, and not every agreement will qualify. This guide explains what the scheme covers, what lenders are required to do, and what you should consider doing now.
What Is the FCA Motor Finance Redress Scheme?
The FCA motor finance redress scheme is a regulatory framework requiring lenders that used discretionary commission arrangements to identify affected customers and pay compensation. It was confirmed in FCA Policy Statement PS26/3 and applies to PCP and HP agreements where a DCA was in place and the customer was not properly informed.
A redress scheme of this scale is unusual, as the FCA typically relies on individual complaints through the Financial Ombudsman Service (FOS). The decision to mandate a formal scheme reflects the breadth of the problem, with the FCA estimating that millions of agreements may have been affected.
For a plain-English overview of how PCP claims work, see: What Is a PCP Claim and Who Can Make One?
What Led to the Scheme: The Discretionary Commission Arrangement Problem
To understand the scheme, it helps to understand what went wrong. For much of the 2010s, car dealerships acting as credit brokers were able to earn higher commissions on finance agreements by setting a higher interest rate, without any obligation to tell customers. This conflict of interest was built into the structure of how motor finance was sold.
The FCA launched a market review in 2017 and published findings in 2019, concluding that DCAs were causing real harm to consumers. It banned the practice from 28 January 2021. The Supreme Court ruling in Johnson v FirstRand Bank, and the subsequent Court of Appeal judgment, clarified that lenders could be liable for undisclosed commissions and opened the door to a broader redress process.
The Role of the Court of Appeal
The Court of Appeal's judgment in 2024 significantly expanded the potential scope of claims beyond DCA arrangements, finding that brokers and lenders had wider duties of disclosure. While the Supreme Court subsequently narrowed some aspects of the ruling, the FCA's own scheme, rooted in its regulatory powers, remains in place independently of the litigation outcome.
Our DCS guide explains how dealer commission structures worked and why they created a conflict of interest: Understanding Dealer Commission and Mis-Sold PCP Finance.
What FCA Policy Statement PS26/3 Actually Says
PS26/3 is the formal document through which the FCA confirmed its approach to motor finance mis-selling. Key provisions include:
- Lenders that used DCAs must proactively identify affected customers and contact them.
- Affected customers must be offered appropriate redress, with the FCA setting out how compensation should be calculated.
- A complaint handling process is required, with independent review available.
- Time limits for lenders to complete the scheme have been set, though some have been extended pending appeals.
The policy statement does not mean that every customer automatically receives a payment. Lenders must assess individual agreements, and customers will receive communication from their lender once the process reaches them. However, this can take time, and there is no guarantee that lenders will assess your case in your favour without scrutiny.
Which Lenders Are Covered by the Redress Scheme?
The scheme applies to lenders that used DCAs in their motor finance products. The major lenders known to have used these arrangements include:
- Barclays Partner Finance
- Black Horse (part of Lloyds Banking Group)
- Close Brothers Motor Finance
- Motonovo Finance
- Santander Consumer Finance
This is not an exhaustive list. If you are unsure whether your lender is covered, the FCA's website publishes updates on which firms are within scope. Alternatively, an FCA-authorised claims management company can advise based on your specific agreement.
What Should Affected Customers Do Now?
There are broadly three approaches customers take when the redress scheme applies to them.
Wait for Your Lender to Contact You
Under PS26/3, lenders are required to proactively reach out to affected customers. This means you do not necessarily have to initiate contact. However, timelines vary by lender, and some are further behind than others. Waiting passively also means you will not have any independent scrutiny of the offer you receive.
Submit a Complaint Directly to Your Lender
You can contact your lender directly to submit a complaint about the commission arrangement on your agreement. If the lender does not resolve it to your satisfaction within eight weeks, you can escalate to the Financial Ombudsman Service.
Use an FCA-Authorised Claims Management Company
An FCA-authorised CMC like PCP Missold can manage the full process on your behalf, from the initial eligibility check through to reviewing any offer you receive before you accept it. This is particularly valuable if your agreement is complex, if your lender is slow to respond, or if you want to ensure any settlement offer is fair.
For a full walkthrough of the claims process, see: A Simple Guide to the PCP Claim Process. Not sure if your agreement qualifies? Read: Are You Eligible for a PCP Refund?
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