With the FCA’s consultation on its proposed motor finance redress scheme now closed, the focus is shifting from policy design to practical delivery. Industry bodies have raised concerns around fairness, proportionality and operational feasibility, and the regulator is expected to publish its final decision in early 2026. As a result, lenders are concentrating on scope, timelines and governance.
Those issues matter, but they do not, on their own, determine how difficult redress will be to deliver. Based on our work supporting motor finance assurance, a significant driver of cost and complexity sits elsewhere – in the mechanics of the redress calculation itself.
Motor finance loans rarely run exactly as planned. Part payments, early settlements, payment holidays and term changes are common, and for many portfolios complexity is the norm rather than the exception. Any redress approach that requires loans to be recalculated must be able to deal with that reality.
In this article, I explain how real-world loan behaviour interacts with the proposed loss-based APR approach, why it materially increases calculation complexity, and what lenders should factor into their redress preparation as delivery moves closer.
Find out how Broadstone can support your Redress Calculations.
Most lenders expected redress to involve familiar, manageable calculations
We began developing a motor finance redress calculator around 18 months ago. Like many firms across the market, our assumptions were shaped by what seemed reasonable given the information available at the time.
Redress was expected to centre on a small number of familiar elements:
- Repayment of commission
- A possible adjustment to interest paid
- Recreating original schedules where data was missing
- Adding simple interest
Much of that thinking still holds. Repayment of commission remains one part of the equation. Where data is unavailable, falling back on the original schedule can be effective. And while interest on compensation is slightly more complex to calculate than first expected, it is lower than it could have been.
So far, those early assumptions have broadly stood up. However, they do not capture the full impact of the loss-based APR adjustment included in the FCA’s proposed redress framework.
Read more: Motor Finance Redress: What the 1 August Ruling Means – and What Lenders Should Be Doing Now
Loss-based APR adjustment changes the calculation
The introduction of a loss-based APR adjustment represents a clear step change in how redress needs to be calculated.
In this context, a loss-based APR means recalculating each loan as if it had originally been written at a lower interest rate, and then compensating the customer for the difference between what they actually paid and what they would have paid under that reduced APR. Rather than adjusting elements of the original loan, this approach requires the loan itself to be rebuilt using an APR reduced by 17%.
Crucially, this is not an overlay applied to an existing schedule. It starts from how the loan actually behaved in practice. That means using the customer’s real payment history, rather than the original planned profile, as the basis for recalculation.
In practical terms, this involves:
- Obtaining the full history of actual payments, including all part and full settlements
- Recreating the loan at the reduced APR
- Recalculating payments and schedules based on real customer behaviour
- Recalculating early settlement charges using the new APR
- Refunding excess interest on each payment
This process requires every customer transaction to be reviewed. Once built, the calculation logic then has to be coded and applied consistently across thousands of accounts, with rigorous checking to ensure accuracy. Detailed internal reporting and a robust audit trail are essential.
At that point, redress calculation becomes a materially different exercise from what many firms may have planned for, both in terms of delivery effort and assurance requirements.
Read more: FOS Reports Surge in Irresponsible Lending Complaints – What Firms Need to Do on Remediation
Why this matters as consultation closes
Much of the current debate has focused on the definition of unfairness, proportionality and whether the proposed scheme is operationally deliverable. Those discussions are important – but from a cost and complexity perspective, it is critical to recognise that recreating loans using a new APR represents one of the most demanding redress outcome lenders could face.
While policy discussions continue, this calculation challenge can easily slip down the priority list. That would be a mistake. Once a calculation methodology is embedded and applied at scale, errors become expensive to correct and difficult to defend. Reopening redress exercises brings regulatory scrutiny, financial cost and reputational risk at precisely the point firms are trying to draw programmes to a close.
This is why calculation readiness and independent assurance matter now, not later. Methodologies grounded in actuarial standards provide confidence that results are accurate, consistent and defensible, and remove one of the key uncertainties lenders face as the FCA motor finance redress framework moves towards finalisation.
Motor finance redress is no longer just a question of who is in scope. For many lenders, it will ultimately come down to whether the calculations underneath are right.
Contact Broadstone to discuss how we support lenders with motor finance redress calculations and specialist assurance, helping ensure complex methodologies are operationally deliverable and robust from day one.
