The legal challenges to the Financial Conduct Authority’s motor finance compensation scheme will be heard by the Upper Tribunal between February 16-26, 2027.
The confirmed timetable means lenders, car dealers and consumers will have to wait until next year for greater clarity over the future of the £9bn redress scheme.
Read Motor finance redress: from commission to compensation
A judgment is expected in the months following the hearing, potentially extending uncertainty surrounding compensation payments well into 2027.
The scheme has been challenged by Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance. Consumer Voice, represented by Courmacs Legal, has launched a separate challenge from the consumer perspective.
Lenders told to keep preparing
Parts of the compensation scheme remain suspended while the challenges are considered. Lenders are not currently required to calculate or pay compensation under the suspended rules.
However, the FCA said finance providers must continue preparing for the scheme and progress complaints as far as possible.
Firms must also comply with the rules that remain in force, including requirements to contact customers who are not entitled to compensation.
The FCA said: “Our scheme is the quickest, fairest and most efficient way to compensate consumers and we will defend it robustly.”
The regulator has also told lenders to plan for the possibility that the scheme, or parts of it, could be quashed by the Upper Tribunal.
If that happens, there may be no industry-wide compensation scheme and the existing pause on complaint handling could end.
Lenders would then have to resolve complaints through the usual process and within normal statutory timescales, creating a potentially significant operational burden.
The FCA said finance companies should prepare rigorously for this outcome, make the necessary financial provisions and engage with their auditors.
Compensation payments remain paused
The February hearing will consider challenges to the lawfulness and structure of the redress scheme, which was designed to compensate customers affected by historical motor finance commission arrangements.
The outcome will be closely watched by dealer finance providers that have already recognised substantial provisions against their possible compensation liabilities.
Volkswagen Financial Services has provided £725m for potential redress while BMW Financial Services has set aside £611.6m. Other substantial provisions have been reported by RCI Financial Services, Stellantis Financial Services and Mercedes-Benz Financial Services.
The delay also prolongs uncertainty for dealer groups and independent car dealers whose finance partners are allocating capital and operational resources to complaint handling and potential compensation costs.
Reacting to the announcement, Harry Charalambous, principal at banking and credit advisory consultancy Broadstone, commented: “The confirmation of a hearing date provides some clarity on the timeline, but lenders cannot afford to put their preparations on hold while they wait for the legal outcome. The FCA has been clear that firms must continue progressing complaints and prepare for all potential outcomes including a no scheme scenario where the usual complaint-handling process and statutory timescales will apply.
“Historic data gaps, legacy system issues, identifying the right customer population and building robust redress calculation processes all take time to address. Lenders should use this period to strengthen their operational readiness and contingency planning. Those that wait for complete legal certainty risk facing a compressed timeframe to resolve complex historic complaints, placing significant pressure on resources and increasing execution risk.”
Kevin Durkin, solicitor-advocate and director at HD Law which is actively using the court route to secure successful outcomes for its clients and secure the maximum compensation tells AM: “Based on our experience successfully representing consumers through the court system, we believe that more than 45% of claims will still need to be pursued through litigation, even if the FCA scheme comes into force, whenever that may be. This could include claims that fall outside the scheme, are affected by its caps or involve losses that exceed the compensation on offer.
“Ultimately, consumers also need to consider how much compensation they could receive. The FCA has proposed an average payment of £829 under its scheme, compared with an average of £1,800 in redress secured for our clients through the court process.”
What the hearing decided
FCA ordered to disclose further evidence The regulator must provide various datasets as well as its DCA Commission Model Impact Analysis, including the computer code or scripts underlying its matching methodology, and its DCA Commission Model Ban Impact Analysis.
Lenders granted permission to use economic experts CA Auto Finance and Volkswagen Financial Services may jointly instruct one economics expert to examine whether the commission arrangements caused consumer harm, whether the FCA’s evidence supports its conclusions and whether the compensation scheme could have been designed to target losses more accurately.
Mercedes-Benz Financial Services has separately been granted permission to instruct an economics expert examining differences between captive finance providers and third-party lenders. Its evidence may address whether the FCA adequately recognised those differences when designing its compensation methodology.
Consumer Voice granted expert evidence Consumer Voice may rely on three reports from Dr Nils Gudat and one report from Dr Pinar Bagci.
FCA permitted its own expert The regulator may instruct one economics expert to respond to the evidence presented by the challengers. FCA
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