The Financial Conduct Authority's proposed motor finance compensation scheme has been partially suspended after the Upper Tribunal agreed to pause key parts of the programme while legal challenges are resolved.

The move means lenders will not yet have to calculate or pay compensation under the scheme, despite the original implementation timetable. However, much of the FCA's wider framework remains in place, with firms still expected to prepare for every possible outcome while the legal process continues.

The regulator has continued to describe its proposed redress programme as the quickest, fairest and most efficient way to compensate consumers affected by the car finance scandal. The scheme remains central to the UK's response to historic commission practices that gave rise to allegations of widespread car finance mis-selling, and the FCA says it will defend the proposals robustly.

Tribunal hearing dates confirmed

The Upper Tribunal has confirmed that it will hear the legal challenges between 14 and 18 December 2026 or between 16 and 26 February 2027 [1].

The final timetable will depend on whether any of the parties successfully apply for additional expert evidence or disclosure of further information before the hearing.

The partial suspension was agreed between the FCA and the four parties challenging the scheme, namely Volkswagen Financial Services, Mercedes Benz Financial Services, Crédit Agricole Auto Finance and consumer campaign group Consumer Voice.

What the partial suspension means

Under the tribunal's order, lenders are no longer required to calculate or pay compensation or send communications confirming compensation awards until the legal proceedings have concluded [2].

The suspension is intended to prevent firms from carrying out work that may need to be repeated if the legal challenges succeed.

However, the FCA stressed that the majority of the scheme remains operational.

Firms must continue identifying relevant complaints and finance agreements, gathering information about commission arrangements and disclosure practices, including information held by brokers, and preparing the data needed to operate the scheme if it ultimately proceeds.

They must also continue progressing complaints wherever possible, cooperate with the Financial Ombudsman Service on existing cases, work with claims representatives where consumers have signed up with more than one organisation, and continue requesting relevant information from brokers.

The FCA said this approach allows firms to continue progressing complaints while reducing unnecessary work during the legal challenge.

Some consumers will still receive decisions

Although compensation payments have been paused, many consumers who are not entitled to compensation under the proposed scheme will still receive a decision from their lender [3].

This applies to complaints that fall outside the scope of the scheme or where lenders conclude that none of the FCA's three proposed unfair features are present. These include discretionary commission arrangements, high commission arrangements and certain tied lending arrangements.

Limited exceptions apply to complaints that lenders believe were already out of time when the scheme was introduced or where contractual tie provisions remain subject to the legal challenge.

Where complaints include issues both inside and outside the proposed scheme, firms must continue responding to the non scheme elements where appropriate.

If consumers disagree with a lender's decision, they can ask the firm to review the outcome before referring the complaint to the Financial Ombudsman Service or considering court action.

The FCA has also confirmed that firms will have an additional seven weeks beyond the relevant scheme deadlines before enforcement action would be considered if more time is needed to notify consumers who are not owed compensation.

Lenders expected to keep customers informed

The regulator expects all lenders to keep complainants updated throughout the legal process.

In particular, the three finance providers challenging the scheme are expected to contact affected complainants directly to explain that they have brought legal proceedings, what the partial suspension means and why compensation payments have been delayed.

The FCA will also publish tribunal documents and provide additional guidance to help firms communicate consistently with consumers.

The regulator confirmed that the complaint handling pause expired on 31 May. Complaints that fall entirely outside the scope of the proposed scheme should therefore continue to be handled through the usual complaints process.

FCA prepares for every outcome

Alongside defending the scheme, the FCA has instructed lenders to prepare for the possibility that it could be overturned in whole or in part.

If that happens, the regulator says firms must be operationally and financially ready to resolve complaints individually under the normal complaints process rather than through a central compensation scheme.

Lenders have been told to maintain appropriate capital and liquidity, make suitable financial provisions and continue working with auditors while contingency planning continues.

The FCA is also working with the Financial Ombudsman Service to prepare for a significant increase in complaints if individual cases ultimately replace the proposed scheme.

The regulator has warned that it will closely supervise firms and could impose business restrictions if they fail to maintain appropriate financial resources.

What this means for motorists

For consumers considering a car finance claim, the latest announcement means there will be a longer wait before compensation can be paid under the FCA's proposed scheme [4].

The regulator says car finance claims remain subject to the legal process, but consumers do not need to wait for the tribunal before submitting a complaint to their lender.

Anyone who believes they may have experienced mis-sold car finance can still complain directly to their lender free of charge.

Consumers who are unsure whether they could be eligible may still complete a car finance refund check while awaiting the tribunal's decision. The FCA says complaints can continue to be submitted even though compensation payments have been paused.

Any future car finance refund will depend on the outcome of the legal proceedings and whether the proposed compensation scheme is ultimately upheld.

What about PCP agreements?

Many of the agreements covered by the FCA review involve PCP car finance.

Motorists considering a PCP claim should note that the partial suspension does not change the proposed eligibility criteria or determine whether an individual agreement qualifies for compensation.

The same applies to consumers pursuing wider PCP claims, which remain subject to the outcome of the legal process.

Consumers exploring PCP finance claims or who believe they may have entered into mis-sold PCP car finance agreements can continue monitoring developments while the tribunal proceedings continue.

Likewise, the suspension does not determine the outcome of any individual PCP compensation claim, which will depend on the final legal framework.

Drivers considering PCP car claims can continue gathering documentation while awaiting further clarity. Those who wish to review their circumstances may also complete a PCP claim check, although eligibility has not changed because of the partial suspension.

Consumers waiting for a PCP refund for their PCP claims should also note that compensation payments cannot begin until the legal process has concluded.

What happens next?

If the tribunal upholds the FCA's scheme and no further appeals follow, the regulator expects car finance compensation payments to begin during 2027.

Consumers who believe their lender has not correctly applied the scheme will be able to ask the Financial Ombudsman Service to review the decision.

If the tribunal overturns all or part of the scheme, the FCA says it will consider its next steps.

One option would be to consult on a revised compensation scheme. However, the regulator has warned that this could delay compensation until 2028 or beyond because of the possibility of further legal challenges [5].

Alternatively, the FCA may require lenders to resolve complaints individually through the normal complaints process. In that scenario, firms would normally have eight weeks to respond to complaints and consumers would retain the right to refer disputes to the Financial Ombudsman Service.

For now, the FCA car finance review remains active, but implementation has been paused while the tribunal considers one of the most significant legal challenges arising from the UK motor finance market.

Although many motorists had hoped to see payouts 2026, the tribunal's order means compensation is now expected to begin no earlier than 2027 if the FCA successfully defends its scheme [6], with further delays possible should a revised approach become necessary.

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References:

1. The Upper Tribunal has confirmed that it will hear the legal challenges between 14 and 18 December 2026 or between 16 and 26 February 2027 - https://www.fca.org.uk/news/statements/motor-finance-scheme-partially-suspended
2. Under the tribunal's order, lenders are no longer required to calculate or pay compensation or send communications confirming compensation awards until the legal proceedings have concluded - https://www.reuters.com/world/uk/uks-fca-says-parts-motor-finance-redress-scheme-suspended-2026-07-02/
3. many consumers who are not entitled to compensation under the proposed scheme will still receive a decision from their lender - https://www.ft.com/content/43e848b0-dd0d-4db2-a32d-0e2c30a219d4?syn-25a6b1a6=1
4. the latest announcement means there will be a longer wait before compensation can be paid under the FCA's proposed scheme - https://www.bbc.com/news/articles/c2l9vvj097lo
5. One option would be to consult on a revised compensation scheme. However, the regulator has warned that this could delay compensation until 2028 or beyond because of the possibility of further legal challenges - https://www.theguardian.com/business/2026/jul/02/fca-ordered-partly-suspend-car-finance-compensation-scheme
6. the tribunal's order means compensation is now expected to begin no earlier than 2027 if the FCA successfully defends its scheme - https://uk.finance.yahoo.com/news/payouts-uk-watchdog-car-finance-123606923.html