Car finance payouts have been delayed after the Financial Conduct Authority was forced to pause its multibillion-pound redress scheme in the face of legal challenges. The suspension, ordered by the Upper Tribunal, means an estimated 12.1 million motorists with eligible car loan agreements will not receive compensation until the courts have ruled on the legality of the FCA’s plans. Payouts had been expected to begin this year, but are now stalled indefinitely while the tribunal hears arguments from four parties seeking to quash the scheme.
Delay and suspension
The FCA confirmed that parts of its motor finance consumer redress scheme have been suspended by order of the Upper Tribunal on terms agreed with the four parties involved. Under the pause, lenders are no longer required to calculate or pay compensation to customers owed money, nor to inform them of the amounts they are due, until the legal process concludes. However, firms must continue preparing for the scheme, progress customer complaints as far as possible, and notify people if they are not owed any compensation. They are also expected to contact customers who have complained to explain the legal challenges and the resulting delays.
Specific deadlines have been set for these non-compensation notifications. For agreements beginning on or after 1 April 2014, lenders should inform complainants by 18 November 2026. For agreements beginning before that date, the deadline is 18 January 2027.
Legal challenges explained
Four challengers have brought the case before the Upper Tribunal: the financial services arms of Volkswagen and Mercedes-Benz, the car finance arm of French bank Crédit Agricole, and the consumer group Consumer Voice, represented by Courmacs Legal. All argue that the FCA’s rules for the redress scheme are unlawful, though their specific grounds differ in important ways.
Consumer Voice claims the scheme’s compensation methodology is inadequate and could leave millions of consumers short-changed, potentially by hundreds of pounds per claim. The group argues that the FCA has given too much weight to the concerns of banks and lenders rather than focusing on consumer protection, and has unfairly capped interest payments. Consumer Voice further contends that most people are likely to receive less than the estimated average payout of around £829 to £830 per agreement, leaving them out of pocket. The challenge also questions the FCA’s authority to make the rules underpinning the scheme. Some claims from the challengers suggest the FCA’s approach has been unduly favourable to both consumers and lenders.
The FCA has said the scheme is designed to compensate consumers for being treated unfairly in a mis-selling scandal centred on discretionary commission arrangements (DCAs). Under these arrangements, car dealers and brokers could inflate interest rates on car finance loans to earn higher commissions, often without customers’ full knowledge or consent. The FCA banned this practice on 28 January 2021. The redress scheme covers regulated motor finance agreements taken out between 6 April 2007 and 1 November 2024, including Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements for cars, vans and motorbikes. Personal Contract Hire (PCH) agreements are not covered.
The Upper Tribunal has agreed to hear the legal challenges in December 2026 or February 2027, with a judgment expected in the months following the hearings. If the courts uphold the scheme and the judgment is not appealed, the FCA expects payments to begin in 2027.
Future implications
If the courts decide to overturn the programme and there can be no industry-wide compensation scheme, the FCA will need to decide what to do next. One option is a complaints-led approach, in which lenders resolve individual claims under the usual complaints process. The FCA has estimated that this could generate up to 19 million complaints, take three years to handle, and cost lenders an additional £6 billion – on top of the scheme’s overall value of approximately £9.1 billion, of which £7.5 billion is earmarked for consumer payouts. Alternatively, the FCA might consult on a revised scheme, which could push compensation payments into 2028 or beyond.
Lenders have been advised to continue preparing for the scheme – identifying complaints, gathering data and cooperating with the Financial Ombudsman Service – while also drafting contingency plans for a scenario without an industry-wide scheme. Concerns have been raised that firms may not hold customer data dating back to 2007, which could complicate the identification of eligible consumers. Consumers have been warned that they do not need to use a claims management company or law firm, and that doing so could result in losing more than 30% of any compensation received. They have also been urged to remain vigilant against scams pretending to be from car finance companies or the government. Those unhappy with a lender’s decision, or whose case falls outside the scheme, can escalate complaints to the Financial Ombudsman Service.
