Motor finance compensation challenge to be heard in February 2027, FCA confirms
The regulator says its redress scheme remains partly suspended until judges rule on challenges from three lenders and a consumer group.
Hearing date set
The Financial Conduct Authority has confirmed that legal challenges to its motor finance compensation scheme will be heard by the Upper Tribunal over ten days, from 16 to 26 February 2027. The scheme, designed to compensate drivers who took out car finance deals affected by undisclosed commission arrangements, is currently partially suspended while the challenges proceed.
Who is challenging the scheme
Three lenders, Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance, have brought legal challenges against the FCA’s scheme. A separate challenge has been lodged by Consumer Voice, a group represented by Courmacs Legal. The FCA has not disclosed further detail on the grounds of either challenge but says it will “defend it robustly”, describing the scheme as “the quickest, fairest and most efficient way to compensate consumers”.
What this means for drivers now
Although parts of the scheme are suspended, the FCA has made clear that firms must keep preparing to run it and should progress complaints “as far as possible” in the meantime. Lenders are still required to comply with the scheme rules that remain in force, including sending letters to some consumers who are not owed compensation under the scheme. This means some drivers who have made motor finance complaints may receive correspondence confirming they are not due a payout, even while the wider legal challenge is unresolved.
Contingency planning ordered
The FCA has told lenders to prepare for the possibility that the Upper Tribunal could quash the scheme, in whole or in part. If that happens, the regulator says there may end up being no motor finance compensation scheme at all, and no pause on complaint handling. In that scenario, lenders would have to resolve complaints through the ordinary complaint-handling process and within the usual statutory timescales, rather than under the bespoke scheme currently in place.
The FCA says it expects firms to “plan rigorously” for this outcome, make the necessary financial provisions, and engage with their auditors. It has encouraged firms with questions to get in touch directly and said it will keep its firm-facing webpage updated with further information as the case progresses.
What happens next
No further hearings or rulings are expected before the Upper Tribunal sits in February 2027. Until then, the scheme remains in its current partially suspended state, with lenders required to keep complying with the rules still in force and to continue preparing to operate the scheme in full. Consumers who have already complained, or who complain in the coming months, should expect any resolution to depend on the outcome of that hearing. The FCA has given no indication of when a final decision might follow the ten-day hearing, nor what would happen to any compensation already paid out if the scheme were later overturned.