The decision means lenders will not be required to calculate or pay compensation until the legal process has concluded. According to the FCA, payments are now expected to begin in 2027 if the scheme is upheld and any subsequent judgment is not appealed.
The delay affects consumers whose motor finance agreements fall within the proposed compensation scheme covering arrangements made between 2007 and 2024. The regulator had previously estimated that around 12.1 million agreements could qualify for redress at a total cost of £9.1 billion, with average compensation of £829 per agreement.
The suspension follows a ruling by the Upper Tribunal, which will hear legal challenges brought by Consumer Voice, Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance later this year or early next year.
Tribunal Timetable Puts Compensation on Hold
According to reports, the Upper Tribunal is expected to hear the challenges either in December 2026 or February 2027. Until those proceedings have concluded, lenders do not have to calculate compensation, make payments or contact consumers who may be entitled to redress under the proposed scheme.
The FCA said the partial suspension allows firms to continue preparing for the scheme while avoiding work that could have to be repeated if the legal challenges succeed. Firms will still be required to progress complaints as far as possible and notify complainants who are not entitled to compensation, subject to limited exceptions.
The regulator also confirmed that, if the scheme is upheld and the judgment is not appealed, compensation payments are expected to begin during 2027. If the tribunal overturns all or part of the scheme, the FCA said it will need to determine its next steps. Should a revised scheme require further consultation and face additional legal challenges, compensation could be delayed until 2028 or beyond.
According to the FCA, one alternative would be to require lenders to resolve complaints individually through the existing complaints process. Under that route, firms would have eight weeks to respond, after which consumers could refer their case to the Financial Ombudsman Service if they remained dissatisfied.
Consumers Advised to Complain Directly to Lenders
The FCA continues to encourage anyone who believes they were treated unfairly under a motor finance agreement to submit a complaint directly to their lender rather than using a claims management company or law firm.
According to the regulator, consumers who use claims firms could lose more than 30% of any compensation they eventually receive. It also warned that some firms may charge cancellation fees if customers decide to withdraw from agreements, although such fees must be reasonable and reflect the work carried out.
The regulator has also confirmed the timetable for consumers who are found not to be eligible for compensation. Motorists whose agreements began on or after 1 April 2014 and who complained by 30 June 2026 should be informed by 18 November 2026 if they are not due compensation. Those with agreements beginning before 1 April 2014 who complained by 31 August 2026 should receive a decision by 18 January 2027.
Commenting on the suspension, Consumer Voice co-founder Alex Neill said the organisation would present evidence arguing that the FCA’s proposed scheme does not provide fair or adequate redress for consumers. Meanwhile, Richard Pinch of consultancy Broadstone said the delay provides lenders with greater operational certainty while allowing them to continue identifying eligible cases and preparing for the tribunal’s decision.
