The FCA’s “35/10” Motor Finance Redress Test Ignores the Real Harm: Interest on Commission Must Count

The FCA’s proposed motor finance redress scheme introduces a controversial “high commission” gateway commonly referred to as the 35/10 test. In principle, we understand what the FCA is trying to do in identifying cases where commission was so large that, had it been properly disclosed, it would likely have changed the consumer’s decision making.

But in practice, the 35/10 test is built on a flawed premise. It focuses on the commission figure alone, rather than the true amount consumers ultimately pay as a result of that commission being financed through the credit.

That distinction matters because in real lending, a £1,000 commission rarely costs the consumer £1,000.

It costs more. Sometimes a lot more.

And if the FCA (and the Financial Ombudsman Service) truly wants a redress framework that reflects real-world detriment, the “total payable” attributable to commission should be used when applying the 35/10 criteria—not the commission-only headline number.

What the FCA’s “35/10” test actually is

Under the FCA’s consultation (CP25/27), a “high commission arrangement” is defined using two thresholds:

• Commission is at least 35% of the total charge for credit, and
• Commission is at least 10% of the total amount of credit.

The FCA’s draft rules also define:

• “Total charge for credit” as the true cost to the borrower of the credit (the familiar concept covering interest and other credit charges under Consumer Credit rules / CONC App 1).
• “Total amount of commission” as the sum of commission payable in connection with entering into the agreement.

And crucially, the FCA says that when calculating whether the thresholds are met, lenders should look at the relevant values as they stood at the start of the agreement.

So far, so technical.

But here’s the problem:

The test uses “total commission” (a lender-to-broker payment), not the borrower’s “total payable” cost of that commission

The FCA’s definition of the commission side of the equation is not “what the customer paid because of commission”. It’s the commission amount paid in connection with the agreement.

That might be convenient administratively. But it is not consumer-realistic, which is unsurprising when it comes to the FCA.

The FCA itself recognises commission inflates borrowing costs, often by more than the commission amount

This isn’t speculation. The FCA’s own analysis in CP25/27 explicitly links higher commission to higher borrowing costs.

For flat fee loans, the FCA reports that:

• On average, each £1 of commission was associated with roughly £0.60 higher cost of credit (though not statistically significant across all agreements).
• But in a “high commission” subset, the FCA found stronger evidence that borrowing costs rose by more than £1 for every £1 of commission, and the effect increases as commission becomes a larger share of the cost of credit and loan amount.
• In cases where commission was at least 50% of total cost of credit, every additional £1 of commission was linked to about a £1.54 increase in borrowing cost.

That is a key admission:

In high commission scenarios, consumers are often paying more than the commission in increased borrowing costs.

Yet the 35/10 test—used to decide whether commission is “high” for scheme purposes still treats the “commission” as though it’s just the bare broker payment figure.

A real example: £1,000 “flat commission” becomes £1,472.87 to the customer

In an example we’ve seen, the broker received a flat commission of £1,000.00.

That is already alarming high because it raises serious questions about incentive conflicts and whether the consumer could ever have given informed consent to a deal priced around such a large hidden payment.

But the bigger scandal is what happened next:

Once the agreement’s interest was applied, the customer didn’t just “pay” £1,000 in economic terms.

They ended up paying £1,472.87 attributable to that commission, meaning £472.87 was effectively interest charged on the commission cost.

That’s 47.29% extra on top of the commission figure.

This is exactly why a commission-only test is misleading

If you assess “high commission” using the £1,000 number, you may conclude the case falls below a threshold.

But if you assess it using the real customer burden, the total payable attributable to commission (£1,472.87), the outcome changes dramatically.

And when the Financial Ombudsman Service (in the example we reviewed) failed to grapple with this, the result will be predictable. The decision will be focused on an accounting input rather than the consumer’s lived financial outcome, again unsurprising when it comes to the Financial Ombudsman Service.

The internal inconsistency: the FCA accepts “commission + interest” matters for remedies, but not for thresholds

The FCA’s consultation acknowledges that courts can award commission plus interest and specifically notes that:

• The Supreme Court awarded repayment of commission plus interest in Johnson.
• The FCA proposes that cases aligning closely with Johnson should similarly be awarded repayment of commission plus interest (subject to its “very high commission” and tie features).

So the FCA recognises that, at least in some circumstances, interest is inseparable from the harm.

But then the scheme’s “high commission” gateway still relies on “total amount of commission” (commission-only), rather than the total payable cost to the consumer attributable to that commission.

That’s not just a technical quibble, it’s a fairness problem.

Because the threshold is meant to identify cases where borrowing costs were disproportionately elevated by commission.

And if the borrowing cost impact is the point, the interest effect cannot be ignored.

Why the commission-only approach risks systemic unfairness

• It disadvantages people with higher APRs and longer terms. Interest is a multiplier. The higher the APR and the longer the term, the more expensive the “same” commission becomes to the consumer. A commission-only test therefore risks producing false negatives precisely where the consumer detriment is greatest.
• It entrenches inequality between “prime” and “non-prime” borrowers.Consumers with weaker credit profiles often face higher APRs. If commission is priced into borrowing costs, they may pay significantly more interest “because of” commission—yet the gateway test remains anchored to the lender’s commission figure. That is the opposite of consumer protection.
• It creates a perverse incentive: hide the harm in the interest rate. If a regime treats commission as a static figure and doesn’t reflect the interest impact, firms can effectively argue about a smaller number—while consumers carry the larger cost through the APR.

Our position: the “total payable” attributable to commission should be used in the 35/10 criteria

If the FCA wants the 35/10 test to reflect “high commission” in any meaningful, consumer-relevant way, it should treat “commission” as:

Commission plus the contractual financing cost of that commission (the interest effect), i.e., the total payable attributable to the commission component.

Call it what it is, the consumer’s commission burden, not the broker’s commission receipt.

A practical, scalable way to do this (without making the scheme unworkable)

We’re not asking for perfection. We’re asking for fairness that can be implemented at scale.

1. Redefine the numerator for the 35/10 test
   Replace “total amount of commission” (commission-only) with an “effective commission cost to consumer” measure: commission plus interest attributable to the commission amount over the agreement term.
2. Require lenders to calculate a “commission amortisation cost”
   Firms already have the inputs (APR, term, repayment profile). Calculating the implied interest attributable to a £X component is feasible.
3. Failing that: add a third gateway limb tied to consumer impact
   For example: if the commission-only test isn’t met, the case can still qualify where the lender’s own data shows the commission was associated with a materially higher APR / cost-of-credit outcome (which the FCA’s own analysis suggests happens in high commission cases).

Why this matters right now

The Financial Ombudsman Service is actively managing consumer expectations and complaint-handling around motor finance commission issues, noting ongoing legal and regulatory developments and temporary complaint-handling rules.

This means the design choices baked into the FCA scheme now will shape outcomes for huge numbers of consumers later.

If those choices embed a commission-only logic that ignores the compounding effect of interest, then even a well-intentioned redress scheme risks becoming a machine for under-recognising detriment.

Conclusion: a redress scheme that ignores interest is not measuring harm

The FCA’s own consultation evidence points in the same direction consumers have been saying all along:

• Commission affects borrowing costs.
• In high commission scenarios, borrowing cost impacts can exceed the commission itself.
• Courts can and do award commission plus interest in appropriate cases.

So it is not credible to maintain a “high commission” test that effectively treats commission as a standalone, interest-free number.

A £1,000 commission that costs a consumer £1,472.87 is not a £1,000 problem.

If the FCA wants the 35/10 threshold to identify disproportionate consumer harm, then the total payable attributable to commission must be part of the criteria.