The Financial Conduct Authority has defended its proposed motor finance compensation scheme in fresh legal submissions [1], arguing that lenders should not be allowed to determine for themselves whether consumers deserve compensation for historic commission arrangements.

The latest court filings mark another significant stage in the ongoing car finance scandal, which has already delayed compensation for millions of motorists. The regulator is defending the legality of its £9.1 billion redress programme before the Upper Tribunal after several finance providers challenged the scheme [2].

The outcome of the case could shape how future car finance claims, including PCP claims, are handled and determine when eligible consumers finally begin receiving car finance compensation.

FCA defends industry wide compensation scheme

In legal submissions filed with the Upper Tribunal, the FCA argued that Parliament gave it the authority to establish an industry wide compensation scheme and that lenders cannot decide for themselves whether compensation should be paid.

The regulator rejected arguments from lenders that compensation should only be assessed on an individual basis. Instead, it maintained that firms must comply with the rules established by the regulator once the scheme is in force.

The legal dispute centres on the FCA's proposed redress scheme for consumers affected by historic car finance mis-selling, including undisclosed commission arrangements that were common in parts of the motor finance market between 2007 and 2024.

The regulator continues to describe the scheme as the quickest, fairest and most efficient way to compensate consumers.

Lenders continue to challenge the proposals

Volkswagen Financial Services and Crédit Agricole Auto Finance are among the organisations challenging the FCA's proposals before the Upper Tribunal [3].

They argue the regulator's methodology assumes consumers suffered financial loss simply because commissions were not properly disclosed. According to their submissions, compensation should instead be assessed on a case by case basis rather than through an industry wide approach.

The legal proceedings follow earlier challenges over whether the FCA's proposed methodology fairly calculates compensation and whether the regulator has exceeded its statutory powers.

The dispute has already contributed to delays, with payouts 2026 now no longer expected under the original timetable.

Separate challenge argues scheme should go further

The FCA is also responding to a separate legal challenge from Consumer Voice [4], which argues that the proposed compensation framework does not go far enough for affected motorists.

According to court submissions, Consumer Voice believes the current methodology could leave consumers under compensated and has argued that the proposed scheme fails to deliver the full amount that some motorists may be entitled to recover.

The FCA disputes those arguments and continues to defend the overall structure of its proposed redress programme.

Compensation remains on hold

The legal dispute means compensation payments cannot begin until the tribunal has ruled on the challenges.

Hearings are currently scheduled for either December 2026 or February 2027, depending on procedural matters before the Upper Tribunal [5].

If the FCA successfully defends its scheme and no further appeals follow, compensation is expected to begin during 2027.

The regulator continues to estimate that around 12.1 million motor finance agreements could fall within the scope of the proposed scheme [6], with approximately £7.5 billion expected to be paid directly to consumers and total programme costs estimated at £9.1 billion.

The FCA has also warned previously that abandoning the scheme altogether could increase industry costs by more than £6 billion and significantly prolong the overall compensation process.

What this means for motorists

For consumers considering a car finance claim, the latest legal submissions do not change the current position.

The FCA has confirmed that motorists can continue submitting complaints to their lenders while the legal proceedings continue.

Consumers who have already submitted car finance claims generally do not need to take further action unless contacted by their lender.

Some motorists may receive decisions if lenders conclude they are not entitled to compensation under the proposed scheme. Those who disagree with a decision can ask their lender to review it before referring the matter to the Financial Ombudsman Service or considering court action.

Consumers who believe they may have been affected by mis-sold car finance can also continue reviewing historic agreements and carrying out a car finance refund check while awaiting further developments.

Any future car finance refund will ultimately depend on the outcome of the tribunal proceedings and the final structure of the compensation scheme.

What about PCP agreements?

Many motorists affected by the ongoing review entered into PCP car finance agreements.

The legal challenge does not change the proposed eligibility criteria for a PCP claim or wider PCP claims. Instead, it focuses on whether the FCA's overall compensation methodology is lawful.

Consumers exploring PCP finance claims or who believe they may have experienced mis-sold PCP car finance can continue gathering documentation while the tribunal proceedings continue.

Likewise, the outcome of any individual PCP compensation claim will depend on the final outcome of the legal process rather than the current court hearings alone.

Drivers considering PCP car claims may also wish to complete a PCP claim check so they are prepared if compensation begins following the tribunal's decision.

Those hoping to receive a PCP refund should be aware that payments remain on hold until the legal challenges have been resolved.

What happens next?

The tribunal will consider the competing legal arguments later this year or early next year before issuing its judgment.

Until then, the FCA car finance scheme remains partially suspended, although lenders are still required to continue preparing for its possible implementation by identifying eligible agreements and gathering relevant information.

For motorists, the legal battle represents another delay in one of the UK's largest financial redress programmes. However, consumers who believe they may have been affected by the car finance scandal can still submit complaints, prepare supporting documents and monitor official updates while the courts determine the future of the compensation scheme.

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References:

1. The Financial Conduct Authority has defended its proposed motor finance compensation scheme in fresh legal submissions - https://www.ft.com/content/48e129fd-35f3-4543-bd22-be0b116cbb86
2. The regulator is defending the legality of its £9.1 billion redress programme before the Upper Tribunal after several finance providers challenged the scheme - https://www.theguardian.com/business/2026/jul/08/city-regulator-claims-car-loans-scandal
3. Volkswagen Financial Services and Crédit Agricole Auto Finance are among the organisations challenging the FCA's proposals before the Upper Tribunal - https://www.reuters.com/sustainability/boards-policy-regulation/mercedes-benz-joins-challengers-12-billion-uk-car-finance-redress-scheme-2026-04-29/
4. The FCA is also responding to a separate legal challenge from Consumer Voice - https://consumervoice.uk/cars/fca-car-finance-compensation-challenge/
5. Hearings are currently scheduled for either December 2026 or February 2027, depending on procedural matters before the Upper Tribunal - https://www.fca.org.uk/news/statements/motor-finance-scheme-partially-suspended
6. The regulator continues to estimate that around 12.1 million motor finance agreements could fall within the scope of the proposed scheme - https://www.fca.org.uk/publication/policy/ps26-3.pdf