Motor Finance Redress is a Clean-Up, a Compromise, and a Promise Not Quite Kept
The following article was contributed by Kevin Prior, Chief Commercial Officer of Seven Stars Legal Funding.
When the Financial Conduct Authority pushed back its redress consultation deadline to 12 December 2025, its reasoning sounded awfully familiar: the regulator needed more time to ‘get it right’.
What eventually landed in the FCA’s final redress scheme rules in Policy Statement 26/3 on 30 March 2026 was, depending on where you sit, the good, the bad, and the ugly all at once.
- Good, in that an estimated £7.5 billion will move from lenders to consumers, and the regulator will clean up a historically disorderly market in the process.
- Bad, in that the final rules are more complicated, conditional, and fairly transparently the product of a protracted negotiation between the FCA and lenders.
- And ugly, in that the scheme ultimately falls materially short of the full remedy the FCA promised many mis-sold consumers—a point the regulator itself has effectively conceded.
For law firms, claims management companies, and funders, this is a more interesting combination than it may appear at first glance.
The rules introduced:
- two schemes, not one—albeit there was some logic behind the regulator’s reasoning on this point;
- tightened eligibility;
- a cap on compensation in roughly a third of claims;
- an APR adjustment that the FCA itself described as a ‘bounded regulatory judgement’; and
- rebuttable presumptions on certain agreements.
All of this prompts a question worth asking: what do the FCA’s delays, and the scheme that eventually emerged from them, actually mean for law firms, claims management companies, the funders behind them, and, most importantly, the consumers who are waiting to get their money back?
The drumbeat that never stopped
Between the FCA commencing its investigation into historical car finance mis-selling tied to the use of discretionary commission arrangements on 11 January 2024 and the recent publication of the final rules, motor finance mis-selling has become the biggest consumer finance news in the UK. The Court of Appeal and Supreme Court rulings in the Johnson, Wrench and Hopcraft test cases gave the scandal legal weight. The regulator’s October 2025 proposals provided the redress framework. Every court ruling, extension of the complaint-handling pause, public comments by the FCA, or advice from consumer advocates ensured that motor finance mis-selling was never far from the headlines.
None of this was free publicity for the FCA’s preferred outcome of a tidy, do-it-yourself scheme. In addition to coverage of these events themselves, each development generated further news by prompting additional rounds of lender provisioning and speculation about the industry’s total liabilities.
The FCA estimates that:
- 79% of motor finance customers know their lenders may owe them compensation;
- 61% are aware of the redress scheme; and
- 75% of eligible people will participate in the scheme and receive redress.
The awareness percentages, in particular, still seem lower than you might expect, given the scandal’s extensive coverage. But these numbers did not come from nowhere. They came from over two years of accumulated noise.
And behind the noise—the removal of 800 misleading adverts by FCA-regulated claims management firms, the new joint taskforce to deal with law firms and CMCs failing to adhere to good practice, the regulator’s continued insistence that consumers do not need professional representation—sits the reality the regulator will not admit.
Professional representation remains in demand and for very good reasons. If it did not, the FCA would not be spending considerable resources on campaigns dedicated to dissuading customers from using it.
Complexity favours expertise
The FCA’s scheme does not inspire confidence that the average consumer will be able to work it out on their own.
Policy Statement 26/3 divides affected agreements into two schemes based on whether the loan began before or after 1 April 2014. Within both schemes, eligibility for redress depends on whether there was a DCA, commission above certain thresholds, or an undisclosed contractual tie. Lenders will calculate consumers’ redress using either a hybrid remedy, which is the average of commission paid and an APR-based estimated loss, or full commission repayment for the estimated 90,000 cases closely aligned with Johnson. Compensatory interest, the Bank of England base rate plus one percentage point, with a 3% annual floor, applies. There are certain inclusions, exclusions, and permissible rebuttals. There are even rules for deceased customers.
The bottom line is that a consumer who took out an agreement 10 years ago and receives a redress offer full of legalese and jargon from their lender probably won’t be able to work out what any of it means over breakfast.
Of course, some people will be able to work it out, or at least receive an offer they deem acceptable, take the money, and get on with their lives. These are exactly the people the FCA has in mind, and the regulator itself even admits that the scheme is more about giving as many eligible people as possible something back rather than fully remedying what has happened.
That is an honest admission, and an uncomfortable one. Getting something back is not the same as getting back what you were owed.
It is right that the FCA has made the scheme as accessible as possible. The problem is that the scheme covers 12.1 million agreements, and our data estimates that most mis-sold consumers will have had at least 2 or 3 motor finance agreements during the relevant period. Expecting millions of people to assess whether their lender has correctly assessed their eligibility or calculated their redress offer is not a realistic view of how consumers engage with financial services. It also paints a picture of an out-of-touch regulator—one that has, separately, decided to let lenders assess the scale of their own wrongdoing. And one whose scheme is now itself the subject of a confirmed legal challenge, which is hardly a vote of confidence in the regulator’s promise of an orderly, do-it-yourself route to compensation. Especially as the challenge is that the FCA’s final rules come down too heavily in favour of lenders. The regulator’s response? To call the challenge ‘disappointing,’ focus on the delay it may cause, and call on those bringing it to explain themselves to their clients. Consumer Voice, which is bringing the challenge with Courmacs Legal, says that the scheme need not be delayed at all, as only specific elements are in dispute.
The FCA wants to kill the category, but it will actually weed out the bad actors
The FCA’s joint taskforce with the Solicitors Regulation Authority, the Information Commissioner’s Office and the Advertising Standards Authority is, on the face of it, a warning shot to professional representatives. Exit fees are under scrutiny. Seven law firms have been closed down by the SRA, with some facing multiple ongoing investigations into their practices, and others have agreed to stop signing up new clients until they can demonstrate compliance with FCA rules.
This, however, is not going to kill the category. Nor will it discourage consumers who have experienced harm. Many are simply not prepared to take lenders’ word that they’re doing right by them this time. Nor do they want to listen to or unquestioningly trust a regulator that allowed this misconduct to happen on its watch in the first place. Instead, it will ensure that what remains is a disciplined, well-run consumer claims market. The firms that can prove to the various regulatory bodies that they are operating fairly and correctly will be left standing and continue to demonstrate and deliver genuine value over and above the outcome of simply waiting for your lender to tell you what they think is a fair redress offer.
For funders, this is a welcome tidying of the sector. The surviving market will be smaller. It will also be more investable.
Where does this all leave law firms and funders?
Delays have given well-run firms time, something they rarely get. Time to refine their onboarding procedures. Time to build a case-vetting methodology worth the name. Time to prepare for a scheme whose final shape only recently became clear. Time to prime their clients for what’s coming. And time to watch the FCA’s own messaging evolve from confident proclamations that consumers do not need representation to an awareness campaign that implicitly concedes that it knows many will seek it anyway.
The scheme that has emerged is more complex and favourable to lenders than the one initially floated. The public awareness that has built up in the meantime has outgrown the neat category of ‘people who will just claim directly’. And the FCA and SRA’s regulatory housekeeping is doing what it should have been doing all along—removing the bad actors responsible for an entire sector being tarred with the same brush, raising the floor for good practice and operational standards, and giving the industry the credibility it needs to grow.
The FCA wanted to take the time to get things right. But it got some things right, some things wrong, and left others visibly short of the mark.
And in delivering its final motor finance redress scheme rules, it has arguably made the case for professional representation more clearly than any law firm could have.
