The Financial Conduct Authority has published the legal documents behind the tribunal proceedings that have delayed its proposed motor finance compensation scheme [1], offering the clearest picture yet of why the redress programme is being challenged.

The documents reveal sharply different views on how consumers affected by the car finance scandal should be compensated, with lenders, the regulator and a consumer campaign group all arguing for different outcomes.

While the legal arguments are complex, the central question is straightforward. Can the FCA require lenders to compensate consumers through a single industry wide scheme, or should every car finance claim be decided individually?

The answer could determine how millions of motorists receive compensation and when payments eventually begin.

Why is the FCA's compensation scheme being challenged?

The FCA announced its proposed redress scheme in March 2026 [2] following its review of historic commission arrangements in the motor finance market.

The regulator has calculated that some 12.1 million finance agreements made between 2007 and 2024 are likely to be covered by the scheme [3]. It has estimated that around £7.5 billion will be paid in car finance compensation.

However, before the scheme could begin, several parties launched legal challenges in the Upper Tribunal.

The tribunal is not deciding whether consumers experienced car finance mis-selling. Instead, it is considering whether the FCA's proposed method of delivering compensation is lawful.

That legal process has resulted in the scheme being partially suspended while the case is heard.

Who is involved?

The tribunal proceedings involve five principal parties.

The Financial Conduct Authority (FCA) is defending its proposed compensation scheme, arguing that it provides the quickest, fairest and most efficient way to compensate affected consumers.

Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance are each challenging aspects of the scheme [4]. They argue that the regulator has exceeded its legal powers and that compensation should be assessed on an individual basis rather than through a standardised industry wide process.

Consumer Voice is also challenging the scheme [5], although from a different perspective. It argues that the FCA's proposed methodology does not go far enough and could leave some consumers receiving less compensation than they should.

The Upper Tribunal will consider all of those arguments before deciding whether the FCA's proposed scheme can proceed.

What are lenders arguing?

According to the published tribunal documents, the lenders believe the FCA's proposed methodology assumes consumers suffered financial loss without properly considering the circumstances of each agreement.

They argue that questions such as disclosure, commission and financial loss should be assessed individually rather than through a standardised industry wide process.

The lenders have also questioned whether the FCA has the statutory authority to require firms to compensate consumers using the proposed methodology.

Their challenge does not dispute that historic commission arrangements existed. Instead, it focuses on whether the regulator's proposed solution complies with the law.

How has the FCA responded?

The FCA strongly rejects the lenders' arguments.

In its legal submissions, the regulator argues that Parliament gave it broad powers to establish consumer redress schemes where widespread failings have occurred.

The FCA says allowing firms to determine for themselves whether consumers suffered compensable harm would undermine the purpose of those powers.

The regulator also argues that resolving complaints individually would take significantly longer, cost substantially more and create inconsistent outcomes for consumers.

It has previously estimated that abandoning the scheme could increase industry costs by more than £6 billion compared with a centralised compensation programme [6].

Why is Consumer Voice also challenging the scheme?

One of the more unusual aspects of the tribunal proceedings is that Consumer Voice is also challenging the FCA's proposals.

Unlike the lenders, the group argues that the regulator's methodology does not go far enough and could leave some consumers receiving less compensation than they should.

The FCA disputes those arguments and has questioned whether Consumer Voice has sufficient legal standing in the proceedings.

The tribunal will consider both the lenders' and Consumer Voice's submissions before reaching its decision.

What does this mean for motorists?

For consumers considering car finance claims, the legal challenge does not prevent complaints from being submitted.

The FCA has stated that they will continue to encourage motorists who believe they have been mis-sold car finance to make a complaint with their lender, whilst the legal process plays out.

If you are a consumer who has already made a car finance claim, there is no need to make any further complaint, unless your lender contacts you.

Some complainants may receive decisions if lenders conclude they are not entitled to compensation under the proposed scheme. If consumers disagree with those decisions, they can ask the lender to review the outcome before referring the complaint to the Financial Ombudsman Service or considering court action.

Motorists who are unsure whether they may qualify can also carry out a car finance refund check and gather finance documents while awaiting the tribunal's decision.

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

What about PCP agreements?

Many of the agreements covered by the FCA review involve PCP car finance, making the tribunal's decision particularly important for motorists who purchased vehicles through Personal Contract Purchase agreements.

Consumers considering a PCP claim should note that the tribunal is examining the legality of the FCA's proposed compensation framework rather than deciding whether individual agreements qualify for compensation.

The same applies to motorists pursuing wider PCP claims arising from historic commission arrangements.

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

Likewise, the tribunal will not determine the outcome of any individual PCP compensation claim.

Drivers considering PCP car claims may wish to organise their finance paperwork and complete a PCP claim check while awaiting further developments.

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

What happens next?

The Upper Tribunal is expected to hear the legal challenges in December 2026 or February 2027 [7], depending on whether further procedural applications are granted.

A judgment is expected several months later.

If the tribunal upholds the FCA's proposed scheme and there are no further appeals, compensation could begin during 2027.

If all or part of the scheme is overturned, the FCA will need to decide whether to revise the programme or require lenders to resolve complaints individually through the normal complaints process.

Why the tribunal matters

Although the legal arguments focus on regulatory powers and compensation methodology, the outcome will have significant consequences for millions of motorists.

The FCA car finance review represents one of the UK's largest consumer redress programmes, covering agreements entered into over a period of nearly two decades.

Whether consumers pursue a car finance claim, explore PCP finance claims, or simply want to understand how the compensation process works, the tribunal's decision will shape the next stage of the UK's response to the car finance scandal.

For now, the compensation scheme remains partially suspended, making payouts 2026 grim, while the courts decide whether the FCA's proposed approach can proceed as planned.

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References:

1. The Financial Conduct Authority has published the legal documents behind the tribunal proceedings that have delayed its proposed motor finance compensation scheme - https://www.fca.org.uk/firms/information-firms-motor-finance-complaints/legal-challenge-documents
2. The FCA announced its proposed redress scheme in March 2026 - https://www.fca.org.uk/publications/policy-statements/ps26-3-motor-finance-consumer-redress-scheme
3. The regulator has calculated that some 12.1 million finance agreements made between 2007 and 2024 are likely to be covered by the scheme - https://www.fca.org.uk/publication/policy/ps26-3.pdf
4. Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance are each challenging aspects of the scheme - https://uk.finance.yahoo.com/news/watchdog-warns-millions-face-fresh-120203420.html
5. Consumer Voice is also challenging the scheme - https://consumervoice.uk/cars/fca-car-finance-compensation-challenge/
6. It has previously estimated that abandoning the scheme could increase industry costs by more than £6 billion compared with a centralised compensation programme - https://www.fca.org.uk/news/statements/motor-finance-scheme-partially-suspended
7. The Upper Tribunal is expected to hear the legal challenges in December 2026 or February 2027 - https://www.fca.org.uk/news/statements/motor-finance-scheme-partially-suspended