- The FCA has partially suspended its motor finance compensation scheme following four legal challenges.
- Millions of motorists could face longer waits for compensation worth an estimated £7.5 billion.
- If the scheme survives the legal battle, payouts are expected to begin in 2027.
Millions of motorists hoping for compensation over motor finance agreements may have to wait longer after the Financial Conduct Authority (FCA) paused key parts of its £7.5 billion motor finance compensation scheme while it defends the programme in court.
The industry-wide redress scheme, announced in March, is designed to compensate consumers who were treated unfairly under motor finance agreements between 2007 and 2024. However, four legal challenges have now put the programme on hold, delaying compensation payments until the courts decide its future.
The FCA said the partial suspension would allow lenders to continue preparing for the scheme without carrying out work that could later have to be repeated if the legal challenges succeed.
A legal fight with billions at stake
The legal challenges have been brought by consumer rights group Consumer Voice and three lenders – Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance.
Consumer Voice argues the proposed scheme does not go far enough and could leave millions of motorists undercompensated by several hundred pounds per claim. The three lenders, meanwhile, are challenging the regulator's approach from a different direction.
The Upper Tribunal is expected to hear the case either in December or February 2027, with a judgment likely in the months that follow.
Until then, lenders will not be required to calculate or pay compensation to eligible customers.
Consumers face a longer wait
Although compensation payments have been paused, firms must continue preparing for the scheme. They are expected to identify affected customers, collect information on commission arrangements and disclosure practices, including data held by brokers, and continue responding to complaints where no compensation is due.
The FCA has also instructed firms to keep customers informed about the legal proceedings and explain how the court challenge could affect the timetable for handling complaints and making payments. The three lenders bringing the legal challenge have been asked to contact their complainants directly, the regulator reportedly said.
If the courts uphold the scheme and there are no further appeals, the FCA expects compensation payments to begin in 2027.
However, if the scheme is overturned, the regulator said it would have to decide its next steps, including whether complaints should instead be handled individually through the existing complaints process. Any revised scheme, particularly if it faces fresh legal action, could push compensation payments back until 2028 or even later.
For now, the future of one of Britain's biggest consumer compensation programmes remains tied to the outcome of a legal battle that could reshape how millions of motor finance complaints are resolved.
