The FCA received over 1,000 responses during consultation on CP27/25, and on the 30th March 2026, published PS26/3. The policy statement confirms, as expected, that a scheme will go ahead, but with a number of changes following the consultation period.
I expect many of these changes will be welcomed by firms, given their overall impact on the shape of the redress bill and reduced operational costs. The destination, however, remains unchanged – customers who have been treated unfairly should be promptly compensated.
The changes:
Two schemes, not one
Perhaps the most structurally significant change from consultation to policy statement is the decision to implement two separate schemes. Scheme 1 covering agreements from 6 April 2007 to 31 March 2014, and Scheme 2 covering agreements from 1 April 2014 to 1 November 2024.
The separation allows more flexibility in the timely delivery of redress for consumers in Scheme 2 should any legal challenge to the earlier period in Scheme 1 be pursued.
Tighter eligibility, clearer boundaries
The policy statement tightens the broad presumption of unfairness on high commission. ‘High commission’ is now defined as at least 39% of the total cost of credit and 10% of the loan value, increased from the 35%/10% threshold consulted on.
A new de minimis threshold removes arrangements with commission of £120 or less (pre-April 2014) and £150 or less (from April 2014) from the scope altogether, on the basis that sums at this level are unlikely to have influenced broker or consumer behaviour.
Zero-APR agreements are also now explicitly excluded. Where a consumer received a zero-interest deal, the FCA’s view is that adequate disclosure would not have prompted them to negotiate further, so no loss is deemed to have occurred. These adjustments reflect genuine engagement with industry feedback and, importantly, reduce the risk of firms compensating customers who were not disadvantaged.
A new rebuttal has also been introduced for tied arrangements that were not operated in practice. Where firms can evidence that a tied arrangement had no actual impact on broker behaviour, they can rebut the presumption of unfairness. The evidential bar is set out in the rules, but firms can also put forward other reasonable proof.
Revisions in the remedy framework
The consultation’s remedy approach has been refined in several important ways. The final scheme introduces a differentiated hybrid remedy for pre-April 2014 agreements (Scheme 1) with the loss element expressed as an APR adjustment of 21%, reflecting the FCA’s analysis that more harmful DCA practices were more prevalent – and APR differentials were larger – in the earlier period.
Compensation will now also be capped to prevent the risk of over-compensation and unfair outcomes across customer segments. This means that customer agreements with APRs in the lowest 5% offered in the market at the time will not be compensated.
On interest, the policy statement introduces a 3% annual floor, ensuring consumers are not penalised by the low interest rate environment that persisted for much of the scheme period. The interest rate itself (annual average Bank of England base rate plus 1%) can no longer be challenged by consumers, removing a potential source of operational friction for firms.
Simpler processes, more proportionate operations
Under the consultation, there was a requirement to contact all customers with relevant arrangements. The policy statement now limits this to complainants and those with relevant arrangements where no exception applies. This may represent a significant reduction in the volume of outreach required for firms.
Firms can use a range of channels appropriate to their customers’ preferences, with appropriate fraud safeguards, and with recorded delivery no longer mandatory for customer communications. Given that 62% of motor finance holders prefer email over post, per the FCA’s own consumer awareness survey, this is both more cost effective and more efficient in delivering the right outcomes for customers.
Customers who already complained before the scheme starts will no longer be asked to opt out and then re-engage. Instead, within three months of the implementation period, firms will simply tell them whether they are owed redress, and how much.
The imperative hasn’t changed
The FCA estimates the scheme will return £7.5bn to consumers, with millions of claims paid out this year and the vast majority settled by the end of 2027. The language of PS26/3 continues to point towards the expectation of action.
For firms, the message from CP25/27 to PS26/3 is one of refinement, while the core architecture of the required response remains intact.
What has changed is a more precise eligibility framework, a fairer remedy methodology, and a more operationally workable delivery model. This means that firms who have been building their data capabilities, mapping their exposure and scenario planning around the consultation proposals are well positioned.
The implementation periods – up to 30 June 2026 for Scheme 2 (loans taken out from 1 April 2014) and 31 August 2026 for Scheme 1 (loans pre-April 2014) are not long in the context of what needs to be in place, the planning and delivery of which will be under close scrutiny of the FCA.
Square 4 works with firms across the sector to navigate complex remediation programmes, including current motor finance requirements, delivering expert scheme assurance, people capacity and standalone motor finance remediation technology.
Click the link below to read more about our motor finance support. If you have any questions regarding how we can help, please reach out to our Client Relationships Director, Sean Kulan.
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