This article focuses on Stage 3 – Calculating Redress, which applies to qualifying customers identified during Stage 2 (Liability Assessment). The FCA’s proposed approach to redress calculation departs from previous remediation models. It reflects both the Supreme Court’s decision in Johnson v FCA and the regulator’s intent to balance fairness, consistency, and practicality, particularly given data limitations for agreements dating back to 2007.
Summary of the Proposed Redress Calculation Process
Once liability has been established, there are three potential remedies that the FCA has outlined: the APR remedy, the Commission remedy, and the hybrid remedy. Which of these remedies is used will depend on both the circumstances of the case and the results of the three calculations.
Each remedy is subject to compensatory interest (deprivation of funds) which for this exercise is calculated using the annual average Bank of England Base Rate +1%. This is a departure from the previous approach of using a simple interest calculation at 8%. However, this aligns to the approach that FOS will use for calculating compensatory interest from January next year.
The APR Remedy
The APR remedy is calculated by identifying the difference in interest between the agreed rate and a “market adjusted rate.” The market adjusted rate is calculated by reducing the agreed rate by 17%. The FCA is suggesting that following analysis of market data, this reduction acts as a reasonable proxy for the higher interest rates offered to customers under the relevant arrangements.
Each payment under the agreement is recalculated using the market adjusted rate to identify the difference in interest paid for each transaction under the agreement. Compensatory interest is then added from the point of each payment to the point of expected redress. The resulting total of both the difference in interest and the total value of compensatory interest creates the APR Remedy.
The Commission Remedy
The commission remedy is much simpler and is calculated by taking the amount of commission paid and adding compensatory interest from the start date of the agreement to the point of expected redress.
The Hybrid Remedy
The Hybrid Remedy is the average of the Commission and APR remedies. It is calculated by totalling the previous two results and dividing by two.
Customers who qualify for redress under the scheme will fall into two calculation categories:
A) Customers who are similar to the Johnson case (very high commission levels and a tied arrangement) will be awarded a similar remedy to that awarded by the Supreme Court; the commission remedy only is used. In circumstances where the commission remedy is lower than the APR Remedy, the APR Remedy will be used to account for cases where higher interest rates applied.
B) All other customers will receive the Hybrid Remedy, unless the APR remedy is higher, in which case the APR remedy will be used.
In all cases, the FCA has provided guidance for lenders on how to accommodate calculation where key data needed to perform the calculation is not available. Where the transactional data is no longer available, firms can instead recreate the expected payments schedule for the loan using the original loan parameters. Where one or more of these parameters are not known, the FCA has suggested substitutions based on market averages.
Key Considerations for Stage 3
Transactional Calculations
The FCA’s proposed redress methodology is transactional in nature, requiring firms to apply the calculations to each individual payment made during the life of the agreement. This ensures accurate compensation for deprivation of funds as loan balances reduce. However, it also introduces significant complexity. Firms must ensure they have the tools, data, and capacity to complete this process accurately and within the proposed timelines.
Calculation Tools
Given the calculation volumes and complexity—combined with the FCA’s tight deadlines—firms should now consider how they will build or source calculator tools to support this stage. Options include developing an internal calculator or partnering with an external provider such as EQ. Building and testing from scratch presents challenges, given that tools will need to be operational by around Spring 2026—allowing as little as six months for full testing and deployment.
Given the precision required for transactional redress, reliance on manual methods such as spreadsheets could expose firms to errors and operational risk. Automated systems, audit trails, and validation controls will be critical to ensuring compliance with the FCA’s expectations.
References
FCA Consultation Paper CP25/27: Motor Finance Consumer Redress Scheme (7 October 2025), Chapters 9–10 and Annex 4.
Giving feedback to the FCA
The FCA is accepting feedback until 12th December for the consultation on the proposed redress scheme.
Four stages made clear
In this series, EQ is outlining what firms need to prepare and consider as part of each of the four scheme steps:
- Stage 1 – Identification of scheme cases and consumer consent – Firms to undertake checks to identify if customers are excluded or included in the scheme to and communicate this to their whole customer base.
- Stage 2 – Liability assessment – Firms to assess if they are liable to pay redress to each customer.
- Stage 3 – Calculation of redress – Firms to calculate the total amount of redress for each affected customer.
- Stage 4 –Communicating redress outcomes – Firms to send out the final redress determination letter to consumers and pay all necessary redress.
