Motor finance redress payments are unlikely to begin before 2027 following a move by the Upper Tribunal to partly suspend the long-awaited compensation scheme while legal challenges are heard.
The Financial Conduct Authority (FCA) today said firms will not be required to calculate or pay redress, or send communications about compensation owed under the scheme, until the tribunal process has concluded.
The legal challenges to the scheme will be heard from either December 14 to 18, 2026 or February 16 to 26, 2027, depending on whether any parties seek further expert opinion or disclosure of information. The FCA said judgment is expected in the months following the hearing.
Redress work paused
The partial suspension has been agreed between the FCA and the four commercial parties challenging the scheme: Consumer Voice, represented by Courmacs Legal, Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance.
The FCA said the suspension allows firms to keep preparing for the scheme while avoiding work that may need to be repeated if the legal challenges succeed. “Our scheme is the quickest, fairest and most efficient way to compensate consumers and we will defend it robustly,” it insisted.
The suspension means lenders do not need to calculate or pay compensation while the legal process continues. However, firms must still identify relevant complaints and agreements, gather the data needed to identify commission arrangements and disclosure practices and work with brokers where information is held outside the lender.
Dealerships must also continue to provide lenders with requested documents or information, or confirm they do not hold them, within one month of a request.
No scheme scenario
The FCA warned lenders they must also prepare for the possibility that the scheme, or parts of it, could be quashed. In that scenario, the FCA said there would be no complaints pause and no motor finance compensation scheme.
It said lenders must therefore be operationally and financially ready for a complaint-led and supervisory approach to resolving historic liabilities under default statutory complaint timelines.
The FCA added that lenders should make provisions, engage with auditors and maintain appropriate capital and liquidity in a UK regulated entity, warning that it could impose business restrictions where firms do not have the right financial resources in place.
The regulator said it is also working with the Financial Ombudsman Service, which is preparing for a significant increase in cases if the scheme is overturned.
If the scheme is overturned in whole or in part, the FCA said it may either consult on a revised scheme, which could delay compensation until 2028 or beyond, or require lenders to resolve complaints individually through the usual complaints process.
If that event, lenders would need to respond within eight weeks, with consumers able to refer complaints to the Financial Ombudsman Service if they believe they have not been treated fairly.
Firms still under pressure
The FCA said it would now take a pragmatic approach to supervision, recognising operational strain on firms and frustration among customers.
It said firms needing more time to tell consumers they are not owed compensation will not be treated as non-compliant if they respond within seven weeks of the relevant scheme deadline.
The regulator said the complaint handling pause expired on May 31 and complaints entirely outside the scope of the scheme rules should now be progressed in the usual way.
The FCA also said all lenders should keep complainants updated on the latest developments, explain when the legal challenge will be heard and set out how the partial suspension affects complaint handling and compensation timelines.
It said the three lenders challenging the scheme should contact all their complainants individually to explain they have issued a legal challenge and that this has delayed compensation payments.
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