By Richard Pinch, Senior Risk Director at Broadstone
Summary
In this article, Broadstone’s Senior Risk Director, Richard Pinch, examines how the FCA’s final motor finance redress rules change the delivery of redress calculations. While the overall framework remains familiar, additional steps, new data requirements and the introduction of caps materially increase complexity. He explains where the real workload sits and what lenders need to prioritise now.
Motor finance redress has moved from a policy question to a calculation delivery challenge for lenders
At the end of March the FCA published PS26/3: Motor finance consumer redress scheme, its final ruling on motor finance redress. The question for lenders is no longer what the scheme will look like, but how it can be delivered in practice across large portfolios of historic agreements.
For most lenders, that means one thing: building calculations that are accurate, consistent and scalable across large portfolios.
The structure of those calculations remains familiar to what was set out in the consultation paper (CP25/27), but the details have changed in ways that matter. Following PS26/3, average redress has increased from £695 to £829, and the operational burden sits firmly in how calculations are designed and executed.
In this article,I focus on where that complexity sits and what lenders should prioritise, including:
- Turning policy into calculation logic
- Ensuring historic data is usable
- Building approaches that will stand up to FCA scrutiny
Taken together, these challenges mean that delivery is no longer just a technical exercise – it requires a structured, end-to-end approach to calculation design, data and assurance.
Talk to Broadstone’s Banking & Credit Advisory team about motor finance redress.
The majority of redress calculations will sit in the standard (hybrid) approach, concentrating delivery risk in one place
The starting point for that delivery challenge is understanding where the volume and complexity of calculations will actually sit.
The FCA framework includes two calculation approaches:
- A high-commission remedy: This applies in very high commission cases – for example where commission exceeds around 50% of the total cost of credit and 22.5% of the loan. These are expected to be relatively rare.
- A standard (hybrid) remedy: This is used for the vast majority of agreements, combining commission repayment with an APR-based loss calculation.
Most agreements will fall into the standard (hybrid) approach. For lenders, this is where the bulk of the work sits, driving most of the calculation build, data requirements and delivery risk.
This concentration of volume means that even small weaknesses in how the approach is designed or implemented will be quickly magnified. The challenge is not understanding the methodology, but applying it consistently across large portfolios.
Increased calculation detail means delivery now depends on data quality and consistent judgement
Once lenders focus on the standard calculation approach, the next challenge is the level of detail required to actually execute it.
The core methodology underpinning redress has not changed. APR adjustment remains central, so early build work has not been wasted. What has changed is the level of detail.
The FCA has introduced additional calculation steps, particularly around payment schedules. A new option to use loan schedules reduces ambiguity in some cases, but introduces a dependency on data that many firms have not historically prioritised. In other areas there remains ambiguity and firms will need to derive their own interpretation of the rules and how to implement.
This creates three practical challenges:
- Sourcing historic loan schedules
- Handling real-world behaviour such as partial/full early settlement or irregular payments
- Defining consistent approaches where FCA guidance is limited
There are also new eligibility filters to apply, including zero APR agreements, de minimis commission and certain high-value loans. At this point, calculation design becomes a delivery problem. Firms are not interpreting policy – they are operationalising it.
The result is that calculation accuracy now depends as much on data quality and judgement as it does on the methodology itself.
Explore how Broadstone simplifies the redress calculation process.
APR splits and caps require lenders to manage multiple interdependent calculation frameworks
Layered on top of this increased data and judgement complexity is a more demanding calculation framework. Redress calculation itself has become more complex.
Pre- and post-2014 agreements now use different APR adjustments – 21% and 17% respectively. This alone is expected to increase redress by around £31 per agreement for earlier cases.
Alongside this, three caps now limit outcomes:
- A cap at 90% of commission plus interest
- A cap based on the adjusted realised total cost of credit (TCC)
- A cap based on the unadjusted realised TCC
Each is simple in isolation, but together they require multiple calculations and careful reconciliation. In practice, lenders must run parallel calculation approaches, apply caps consistently, and ensure outputs reconcile and can be explained.
As a result, firms are no longer implementing a single calculation, but managing a controlled framework of interdependent calculations that must align across all scenarios. What appears straightforward in principle becomes significantly more complex when applied across large portfolios, where multiple calculation paths, caps and customer behaviours must all be handled consistently.
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Tight timelines mean early calculation and data decisions will determine delivery success and cost
All of this sits within a delivery timeline that leaves limited room for iteration once approaches are in place. The implementation period provides some breathing room… but not much.
The bigger issue is data. Lenders need to bring together agreement terms, commission structures and full transaction histories – often across fragmented systems.
There is also a strategic choice. Some firms may simplify delivery by using caps as a proxy rather than running full calculations in all cases. That may be efficient, but it requires careful judgement.
The priorities for lenders are clear:
- Resolve data gaps early
- Finalise methodologies before scaling
- Ensure outputs are robust and defensible
Compensatory interest also needs to be factored in. A 3% floor applies, rising to 8% if payments are delayed – increasing the cost of getting delivery wrong.
Once calculations are live, they are difficult to revisit. Errors become expensive quickly. This is why early decisions on calculation design, data and methodology are critical – they will define both delivery risk and overall programme cost.
Motor finance redress is often framed in terms of exposure. In practice, success will depend on whether the calculations underneath that exposure are right.
Talk to Broadstone’s Insurance Advisory & Remediation team about delivering motor finance redress calculations
Broadstone’s Banking & Credit Advisory team supports lenders with the design, validation and delivery of redress calculations at scale.
We help ensure methodologies are accurate, consistent and defensible – from initial build through to full programme delivery. If you are working through your approach to motor finance redress, now is the time to get the calculation right.
Talk to Broadstone’s Banking & Credit Advisory team about motor finance redress.
