The Upper Tribunal has temporarily suspended specific components of the Financial Conduct Authority's motor finance compensation scheme after legal challenges were brought by four commercial entities, the regulator said on Thursday.
The tribunal has scheduled a hearing for the disputes in one of two windows: December 14-18, 2026, or February 16-26, 2027. Which set of dates is used will depend on whether the parties request additional expert evidence or further disclosure of information.
The partial stay applies to four parties: Consumer Voice, represented by Courmacs Legal, Volkswagen Financial Services, Mercedes Benz Financial Services, and Crédit Agricole Auto Finance. The FCA and those four challengers agreed to the suspension.
Under the suspension terms, firms are not required to calculate or pay redress, nor to send communications to customers about compensation owed under the scheme, while the Upper Tribunal process is ongoing. Despite that pause, firms must continue preparatory activities, including identifying complaints and agreements that fall within the scheme's scope and collecting data about commission arrangements and disclosure practices.
The regulator specified that firms should still respond to complainants who, according to the scheme's criteria, are not owed compensation by the scheme deadlines. There are limited exceptions to the suspension: it does not apply where firms consider complaints were time-barred at the moment the scheme was established, or where complaints involve contractual links and a firm relies on the captive lender exception.
Firms are also required to inform complainants of the outcomes for non-scheme elements of mixed complaints, and to continue cooperating with the Financial Ombudsman Service on any existing cases. The FCA said it will not take enforcement action against firms that need extra time to notify consumers that they are not owed compensation, provided those notifications are completed within seven weeks of the relevant scheme deadline.
Separately, the FCA noted that a pause in complaint handling ended on May 31. The regulator expects the three lenders that initiated the legal challenge to reach out to each complainant individually to explain both the legal challenge and the resulting suspension of parts of the scheme.
For complainants who lodged claims by the relevant cutoff dates but who are not owed compensation under the scheme, lenders should issue responses by specific deadlines: by November 18, 2026 for agreements entered into on or after April 1, 2014, and by January 18, 2027 for agreements made before April 1, 2014.
The FCA set out two potential downstream scenarios. If the tribunal upholds the scheme and no appeal follows, the regulator expects payments to commence in 2027. If the scheme is overturned, the FCA may require lenders to handle complaints individually through standard complaints processes, in which case lenders would have an eight-week deadline to respond.
Summary
The Upper Tribunal has agreed to suspend parts of the FCA's motor finance compensation scheme while legal challenges brought by four commercial parties are heard. The pause delays calculation, payment, and certain communications about compensation, but firms must continue complaint identification, data collection on commissions and disclosures, and specified communications to complainants who are not owed compensation. The hearing is set for December 2026 or February 2027, contingent on procedural requests.
Key points
- The tribunal hearing is scheduled for December 14-18, 2026, or February 16-26, 2027, depending on requests for extra evidence or disclosure - impacting the timeline for the scheme.
- Four parties have agreed to the partial suspension: Consumer Voice (Courmacs Legal), Volkswagen Financial Services, Mercedes Benz Financial Services, and Crédit Agricole Auto Finance - directly affecting motor finance lenders and consumers.
- Firms must keep identifying relevant complaints and gather commission and disclosure data even while payments and certain communications are paused; deadlines for responses to complainants not owed compensation are November 18, 2026 and January 18, 2027 based on agreement dates.
Risks and uncertainties
- Legal uncertainty - The pending tribunal decisions create timing and compliance ambiguity for lenders and consumers in the motor finance sector, which may affect operational planning for banks and captive lenders.
- Delay to compensation - If the scheme is upheld, payments are expected in 2027; if overturned, firms may need to revert to individual complaint resolution, extending time to closure for affected consumers and increasing workload for complaints teams.
- Regulatory and operational burden - Continued requirements to identify complaints and collect detailed data on commissions and disclosures impose ongoing resource demands on lenders and their compliance functions.