The Financial Conduct Authority paused parts of its car finance compensation scheme on Thursday while the Upper Tribunal hears legal challenges. Lenders now have to keep preparing, but they can hold back work that may need to be repeated if the challenge succeeds.
The move covers a £9bn redress scheme linked to secret commission deals between lenders and dealers. For consumers waiting on possible payouts, the timetable has shifted again before a single cheque has gone out.
£9bn scheme under pause
The FCA’s suspension means motor finance lenders do not have to calculate exactly how much money a consumer is owed while the legal challenge is ongoing. They also do not have to pay out compensation to those owed during that period, and deadlines for calculating, communicating and paying redress are now on hold until the Upper Tribunal process concludes.
That change matters because the FCA had already put lenders on the hook for £9.1bn in its finalised proposals at the end of March, while slimming the number of qualifying agreements to 12.1m from 14.2m. The pause freezes the mechanics of a scheme that was already being scaled back before the latest legal order.
Volkswagen, Mercedes Benz, Crédit Agricole
Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance are involved in the FCA’s legal battle. Consumer Voice is bringing forward a challenge represented by Courmacs Legal, and the dispute centres on how the FCA applied the law relating to limitation periods.
Earlier this month, the FCA sent letters to more than 100 motor finance firms and said, “We are very concerned about many firms’ operational readiness to handle complaints.” The warning showed the regulator wanted systems ready even as the legal fight kept moving.
February 2027 hearings
The Upper Tribunal is expected to hear the case as late as February 2027. Under the suspension, captive lenders that were previously required to notify a consumer by January 2027 if they planned to reject a complaint can now pause those rejections and the related processing and communication until the ruling.
If the scheme is overturned, the FCA may tell lenders to resolve complaints individually under the usual complaints process, a route it said could avoid delaying compensation into 2028 or beyond. Last August, the Supreme Court ruled in favour of lenders on two out of three cases, but the FCA still opened the door to industry-wide redress after unfairness was found in one outsized commission charge.
For borrowers, the practical result is simple: firms must keep building for a payout system that may never run in its current form, while consumers wait for the legal process to decide whether compensation is handled through the scheme or one complaint at a time.
