How to Calculate Redress: Motor Finance Compensation Scheme

8 steps to calculate redress under the motor finance compensation scheme.

The Financial Conduct Authority (FCA) released their consultation on the motor finance compensation scheme on 7 October 2025, this article looks at one element of the scheme, how much redress is to be paid to customers.

The proposal for calculating redress for consumers under the compensation scheme for motor finance is a complex one. If the proposals go ahead, lenders will need to begin collating information that will be needed to calculate redress amounts as soon as possible.

The FCA calculates the total, market-wide cost of the redress that is owed by lenders to be £9.7bn, if 100% of cases where there is an unfair relationship claim receive redress – so in practice, it may well be around £1.5bn less.

Compensatory interest is to be calculated using an annual average of the daily Bank of England base rate plus one percentage point.

Redress may be offset against any money owed by the consumer to the lender (e.g. arrears) that are not subject to an unresolved dispute, complaint, or legal claim.

There are three remedies available: the refund of commission remedy, the hybrid remedy and the APR compensation remedy.

If the case involves a high commission arrangement, the lender will then need to calculate if the amount was very high (very high commission arrangements are defined as 50% of the total cost of credit and over 22.5% of the loan amount). In these cases – which are thought to be rare – the lender must calculate and pay redress in accordance with whichever is the higher of the commission or APR adjustment remedy.

In all other cases the lender must calculate and pay redress in accordance with the hybrid remedy unless the APR adjustment remedy is greater.

Under the proposals, lenders will need to calculate the redress owed carefully and using good evidence where it is available:

Step 1: Calculate the commission repayment remedy redress amount.

• To do this, lenders must understand the total amount paid to the broker. They must calculate redress as the total commission paid to the broker plus compensatory interest, plus 1ppt per year from the date of the agreement.

• If the unfair relationship arose from either inadequately disclosed very high commission arrangements or a tied arrangement, then lenders must compare redress calculated under the commission repayment remedy with redress calculated under the APR adjustment remedy. Use the highest remedy. If the unfair relationship arose for any other reason, move to Step 2.

Step 2: Calculate the market-adjusted APR, as the original APR multiplied by 0.83. Use this unless the agreement includes a DCA with a minimum discretionary commission-paying interest rate that is higher than the calculation in this step. In that case, use the minimum interest rate. Lenders must have the original APR and minimum DCA APR to be able to undertake this calculation.

Step 3: Create a schedule of payments under the agreement at the original APR. There are two options:

• Option 1: If all necessary data is available, reconstruct the consumer’s actual payment schedule.

• Option 2: If Option 1 is not possible, create the schedule by assuming the agreement ran to its full term, and using the FCA’s amortisation formula.

Step 4: Create a schedule of payments under the agreement at the market adjusted APR, using the same option as at Step 3.

Step 5: Calculate payment differentials (overcharges) for actual and market-adjusted payments under the agreement, by subtracting from each actual payment its corresponding market adjusted payment.

Step 6: Apply compensatory interest to each payment differential (overcharge) using the formula at 8.92 on page 102.

Step 7: Calculate APR adjustment remedy redress amount by adding together:

• All payment differentials

• All compensatory interest on payment differentials

Step 8: Calculate the hybrid remedy redress amount, using the formula (A + B) / 2 where A is the APR adjustment remedy amount from Step 7 and B is the total commission paid to the broker, plus compensatory interest at base rate plus 1ppt per year from date of payment (Step 1).

Compare the redress amounts calculated under the hybrid and APR adjustment remedies. If redress is higher under the adjusted APR adjustment remedy, use the APR adjustment remedy.

The full scheme, plus formulae are available in the FCA's Consultation Paper.