More than 12 million car finance agreements signed between 2007 and 2024 are covered by the FCA’s proposed compensation scheme, and a tribunal has now told the regulator to suspend key parts of it. The UK Upper Tribunal made the order while it considers legal challenges to the £9.1 billion programme. Hearings are set for December 2026 or February 2027.
The regulator had hoped to start paying compensation later this year. That now looks unlikely.
Who is challenging the scheme
Four challenges are before the tribunal. Three come from lenders: Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance. The fourth is from the consumer group Consumer Voice.
The lenders argue the scheme is too punitive and that the way compensation is calculated is unlawful. Consumer Voice takes the opposite view, saying the proposed payouts do not go far enough. Across the four cases, the grounds include the FCA’s power to make the rules, how they apply to agreements made before April 2014, limitation periods, presumptions of unfair relationships and the redress calculation.
What lenders must do now
During the pause, lenders do not have to notify eligible customers or calculate payments. They must keep preparing for redress, and they must tell consumers who turn out not to be owed anything.
The dispute centres on discretionary commission arrangements, under which some lenders paid dealerships commissions that were not properly disclosed to customers. Regulators and courts have concluded those arrangements created conflicts of interest that may have left some borrowers paying more than they should have. The FCA earlier estimated the scheme could produce about £7.5 billion in compensation plus around £1.6 billion in administration costs.
If the scheme falls
The FCA has said it wants fair compensation as quickly as possible. It has also told lenders to plan for the worst case, in which no scheme exists. In guidance issued in May, it said lenders should prepare to handle complaints within the usual statutory timeframes from mid-November 2026, with no further extension of the complaints pause, which has run since 11 January 2024. If the tribunal overturns the scheme, the regulator indicated it may require firms to deal with complaints through the normal complaints process.
Consumer experts advise drivers to keep their finance agreements, loan documents and lender correspondence, to follow FCA updates, and not to pay claims management companies or file duplicate complaints. Lawyers have warned that appeals could push substantial payments back by several years.
Sources
- Millions Could Wait Longer for Car Finance Compensation—Here's What UK Drivers Should Do Now
- FCA tells lenders to prepare for ‘no scheme’ scenario amid legal uncertainty
Sources
- Millions Could Wait Longer for Car Finance… | IBTimes UK
- FCA tells lenders to prepare for ‘no scheme’ scenario amid legal…
