The Financial Conduct Authority (FCA) has confirmed that parts of its motor finance compensation scheme have been suspended following a legal challenge, meaning consumers may now face further delays before compensation payments can begin.
The FCA announced that the Upper Tribunal has made an order partially suspending the motor finance redress scheme while legal challenges brought against the scheme are considered.
The decision means that lenders can continue preparing for the scheme and dealing with complaints where possible, but they are not currently required to calculate or pay compensation under the scheme until the legal process has concluded.
The FCA says the partial suspension is designed to prevent lenders from carrying out work that could later need to be repeated if the legal challenges are successful. It also aims to provide greater certainty for consumers whose complaints do not qualify for compensation.
When will the legal challenge be heard?
The Upper Tribunal has confirmed that the legal challenges are expected to be heard either from 14 to 18 December 2026 or from 16 to 26 February 2027.
The final hearing date will depend on whether any of the parties involved seek further expert evidence or disclosure of information and whether those applications are successful.
A judgment is expected in the months following the hearing.
The FCA has said it will continue to defend the compensation scheme, describing it as the quickest, fairest and most efficient way of compensating affected consumers.
Who is challenging the scheme?
The legal challenge involves four commercial parties.
These include Consumer Voice, represented by Courmacs Legal, as well as Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance.
The challenge could affect how the motor finance compensation scheme operates and, depending on the outcome, could lead to changes in how historic complaints are dealt with.
For consumers, this means that the final position on compensation is not yet known.
What does the suspension mean for lenders?
Lenders are still required to carry out a number of important tasks.
They must continue identifying relevant complaints and finance agreements. They must also gather information needed to establish whether commission arrangements and disclosure practices were involved.
This can include information held by car dealers and other brokers.
Lenders must also respond to certain consumers whose complaints do not qualify for compensation under the scheme.
The FCA has said that this includes complaints that fall outside the scheme and cases where none of the three unfair features required for compensation are present.
These features include discretionary commission arrangements, high commission arrangements and certain tied arrangements.
What does it mean for consumers?
For consumers who are potentially entitled to compensation, the most important change is the delay to payments.
Until the legal process has finished, lenders do not need to calculate or pay compensation under the suspended parts of the scheme.
If the scheme is upheld and there is no further appeal, the FCA currently expects PCP compensation payments to resume in 2027. (Source: Claim Smart)
Consumers will then be able to ask the Financial Ombudsman Service to review a lender’s decision if they believe the scheme rules have not been followed correctly.
However, the outcome could be different if the scheme is overturned in whole or in part.
The FCA says it would then need to decide what action to take. One possible option could be asking lenders to deal with complaints individually under the normal complaints process.
Under that approach, lenders would generally have eight weeks to respond to a complaint, after which consumers could refer their case to the Financial Ombudsman Service if they remained unhappy.
Consumers can still make a complaint for free
Despite the suspension, the FCA is continuing to encourage consumers who have concerns about their historic motor finance agreements to complain directly to their lender.
Consumers do not need to use a claims management company or law firm to make a complaint.
The FCA has specifically warned that claims management companies can charge consumers more than 30% of any compensation received. It has also warned consumers against signing up with multiple firms, as this could result in multiple fees being charged.
For people who have already instructed a claims management company or law firm, the FCA says they should carefully check any cancellation fee they are asked to pay. Any fee should be reasonable and reflect work that has actually been carried out.
The future of car finance compensation
The partial suspension creates a period of uncertainty for millions of consumers and the motor finance industry.
Lenders are continuing to prepare while the legal process takes place, but compensation payments under the suspended parts of the scheme cannot currently move forward.
The FCA says its priority remains securing fair compensation for consumers as quickly as possible.
The next major milestone will be the Upper Tribunal hearing, expected in late 2026 or early 2027. Once the legal challenge has been decided, the FCA will be in a better position to confirm the future of the compensation scheme and when affected consumers can expect payments to begin.
Until then, consumers with concerns about historic car finance should keep their details and paperwork safe, stay in contact with their lender and follow developments from the FCA. The regulator has confirmed that the current suspension does not mean that potential compensation has been cancelled; rather, the timetable has been delayed while the legal challenge is considered.