FCA ordered to partly suspend car finance compensation scheme

The Upper Tribunal has ordered the Financial Conduct Authority to partly suspend its motor finance redress scheme, pushing back compensation work for millions of motorists while legal challenges are heard.

The pause means lenders do not have to calculate or pay redress under the scheme for now. The FCA had designed the programme to cover about 12.1 million car finance agreements and estimated average payouts at about £830.

The case is the latest turn in a long-running dispute over undisclosed commission payments on car loans made between 2007 and 2024. The FCA had estimated total payouts of about £7.5bn, plus another £1.6bn in administrative costs.

Court-ordered pause

The tribunal's order changes the immediate timetable for the redress programme, which had been expected to start delivering payouts in 2026. For now, firms are not required to calculate or pay compensation under the scheme.

The hearing on the legal challenges is scheduled for either December 14-18, 2026 or February 16-26, 2027, depending on case management. A judgment is expected months after that hearing.

The challengers include Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance and the consumer group Consumer Voice.

What the scheme covers

The FCA introduced the motor finance redress scheme in March 2026 after reviewing commission arrangements in car lending. The regulator said the problem centred on dealers receiving higher commissions when customers were placed on loans with higher interest rates.

That practice has been described as a major UK consumer finance scandal. The redress plan was intended to compensate customers affected by undisclosed commission payments on motor finance agreements signed over the 17-year period.

The FCA also warned earlier that if claims had to be handled through the usual complaints process instead, the scheme could cost lenders about £6bn more and take up to three years.

What happens next

If the scheme is overturned, the FCA says it may require lenders to resolve complaints individually under the standard complaints process. Consumers could then take complaints to the Financial Ombudsman Service if they believe they have not been treated fairly.

That fallback position leaves the future of the redress programme uncertain. The tribunal could uphold the lenders' challenges, Consumer Voice's challenge, or both, and the FCA may still need to revise the scheme, switch to complaints handling, or abandon it.

For now, the court order leaves a multibillion-pound compensation process in limbo while the tribunal prepares to hear the arguments later this year or in early 2027.