FCA motor finance redress scheme partially suspended

The Financial Conduct Authority (FCA) has confirmed that elements of its motor finance consumer redress scheme have been put on hold, pending the outcome of legal challenges brought by four commercial parties.

The regulator launched the compensation framework in March, intended to reimburse motorists who were treated unfairly under motor finance agreements taken out between 2007 and 2024.

The FCA has estimated the total cost of the scheme at approximately £9.1 billion, of which around £7.5 billion relates directly to compensation payments to customers, with the average individual payment estimated at roughly £830.

The four challengers — Consumer Voice, represented by Courmacs Legal, Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance — contested the scheme after the FCA accused parts of the industry of failing to adequately disclose commission arrangements between lenders and dealerships. The regulator said these arrangements had incentivised brokers to increase interest rates on loans issued during the 17-year period in question.

Most of the motor finance industry, including Lloyds, Barclays, Santander and Close Brothers, did not join the challenge, although some raised concerns that the scheme's scope could allow compensation for motorists who had not suffered any financial loss. Others warned the plan risked discouraging investment in the UK's motor industry, or that it might fail to deliver adequate redress.

London's Upper Tribunal, which hears regulatory disputes, has ordered the partial suspension on terms agreed between the FCA and the four challengers. The tribunal is due to hear the case between 14 and 18 December 2026, or between 16 and 26 February 2027, with the precise dates dependent on whether any party applies for further expert evidence or disclosure of information.

Under the suspension, lenders are not required to calculate or make compensation payments, or contact eligible consumers about redress, until the legal challenges are resolved. Firms must, however, continue to respond to complainants who are not entitled to compensation under the scheme.

The legal challenges to our motor finance scheme will be heard by The Upper Tribunal on 14-18 December 2026 or 16-26 February 2027. The Tribunal has also made an order suspending parts of the scheme on terms agreed by us with the 4 challengers.

The partial suspension enables… pic.twitter.com/ly3vMMxL0v

— Financial Conduct Authority (@TheFCA) July 2, 2026

“The partial suspension enables firms to keep preparing for the scheme and progress complaints as far as possible, while avoiding work that may need to be repeated if the challenges succeed,” the FCA said in a statement.

A judgment is expected in the months following the hearing. Should the scheme be upheld, and assuming no appeal, the FCA said compensation payments could begin in 2027. If the scheme is overturned in whole or in part, the regulator said it would need to decide its next steps, which could include consulting on a revised scheme — a process that could delay redress until 2028 or later.

“We want to secure fair compensation for consumers as quickly as possible,” the FCA said. “So, if the scheme is overturned, we may instead tell lenders to resolve complaints individually under the usual complaints process.”