The FCA's motor finance scheme has been partially suspended: Here's what you need to know
- Claim-Smart Contributor
- 10 hours ago
- 5 min read
The FCA's £7.5 billion motor finance compensation scheme has been partially suspended due to legal challenges.
The scheme has not been cancelled, but lenders no longer need to calculate or pay compensation until the legal process has concluded.
Claimants are still being encouraged to file complaints. If you need extra support doing so, Claim-Smart can help.
Earlier this year, the Financial Conduct Authority (FCA) launched their motor finance redress scheme. The scheme was designed to compensate motorists who had been charged commission by lenders on their car finance contracts without their consent.
However, just this month, that scheme has been temporarily suspended. While that sounds like a big change, it doesn’t mean the scheme has been cancelled.
Instead, the FCA has announced a partial suspension of its motor finance redress scheme after a legal challenge was launched against it.
Here, we explain exactly what the suspension means, how it affects your PCP claim and what you should do next.
If you're looking for a bit of extra support understanding the how the redress scheme is evolving, Claim-Smart can help. We can explain whether you may be eligible to claim and guide you through the process.
What does the partial suspension actually mean?
The FCA has not cancelled its motor finance compensation scheme.
Instead, it has temporarily suspended the parts of the scheme that ask lenders to calculate compensation and make payments to customers.
This is because a legal challenge was launched against the scheme by a number of lenders and one consumer group. Until those legal challenges have been heard, lenders are not legally required to work out how much compensation customers are owed or begin making payments. This is so that they don’t make calculations now, only to have them change down the line.
Does this mean PCP claims have stopped?
No, PCP claims have not stopped. Although compensation payments have been paused, lenders are still expected to do a lot of the work needed to prepare claims.
This includes:
Finding relevant finance agreements
Reviewing historic commission arrangements to see which borrowers were affected
Verifying eligible claims
Responding to claims that are ineligible, letting consumers know they don’t qualify for compensation
Preparing their internal systems for when the legal process finishes
In other words, claims are still progressing behind the scenes, even if compensation isn't being paid out yet.
Why has the FCA suspended the scheme?
The FCA suspended the scheme to prevent lenders doing a chunk of work that may need to be changed if the courts decide parts of the scheme should be amended.
Rather than calculating compensation now and potentially having to recalculate it later, the FCA has said it makes more sense to wait until the legal position is clearer and the scheme is unlikely to change.
At the same time, the FCA has made it clear that it still believes a compensation scheme is the quickest and fairest way to compensate consumers who were affected by these hidden commission arrangements.
Which lenders challenged the scheme?
The legal challenges have been brought by Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance and Consumer Voice.
As a group, they have challenged whether parts of the FCA's compensation scheme are lawful and whether the way the FCA has suggested calculating compensation is appropriate.
Until the Upper Tribunal reaches a decision, the scheme can’t move into the stage where claimants are paid compensation.
When will the court hearing take place?
The Upper Tribunal is currently expected to hear the legal challenges on either the 14th to 18th December 2026, or the 16th to 26th February 2027.
The final dates will depend on whether extra evidence or reports are needed before the hearing. Once the hearing has taken place, the Tribunal will issue its judgment.
Only then will the FCA know whether the scheme can continue as planned or whether changes will be needed. If the latter turns out to be the case, compensation could be delayed even further.
When will compensation be paid?
Unfortunately, compensation is no longer expected to be paid during 2026. If the FCA's scheme is upheld by the Upper Tribunal and there are no other challenges, then payments should begin in 2027.
However, if the courts overturn some or all of the scheme, the FCA may need to redesign it. That could delay compensation until 2028 or beyond.
What happens if the scheme is upheld?
If the courts support the FCA's redress scheme in its current form, lenders will have to keep calculating compensation and making payments as originally planned.
The FCA has previously said that under their current scheme:
Around 12.1 million finance agreements could be eligible for compensation
The average compensation payment could be around £829 per agreement
Total compensation paid by lenders could exceed £7.5 billion
However, it is worth noting that the final amount each claimant will get will depend on the details of their individual finance agreement.
What happens if the scheme is overturned?
If the courts decide that the scheme cannot continue in its current form, the FCA will need to think about what comes next. One option would be to create a new compensation scheme, which could take months.
Another would be to ask lenders to deal with complaints individually through the normal complaints process. However, this could make the process much slower for those affected.
Should I still make a PCP claim?
Yes. Regardless of the delays, the FCA is still telling consumers who believe they may have been affected to complain to their lender.
Submitting your complaint now means your lender can start reviewing your agreement and work out whether you may be eligible for compensation while the legal process continues.
If the scheme is upheld in its current form, people who have already complained are likely to move through the process faster than those who wait.
If you'd like support understanding the process, checking your eligibility or managing your claim, Claim-Smart can help guide you through every step.
What should I do if I've already complained?
If you've already submitted a complaint, there is nothing you need to do for now.
Your lender should keep reviewing your agreement and preparing your claim in the background.
If your lender believes you are not entitled to compensation under the scheme, they may contact you over the coming months to explain why.
If that happens and you think they have made the wrong decision, you can ask them to review it.
If you're still unhappy after that, you may be able to take your complaint to the Financial Ombudsman Service.
The FCA's motor finance scheme has been partially suspended
The FCA's partial suspension has delayed compensation payments, but it has not ended the motor finance redress scheme entirely.
Lenders are still processing complaints and preparing for the scheme behind the scenes, even though they are not currently being asked to calculate compensation or make payments.
If the legal challenges are unsuccessful, compensation should be paid out during 2027.
If you think you may have been affected by undisclosed commission arrangements on a PCP or HP agreement, it is still worth understanding your options.
You can complain directly to your lender for free, or, if you'd like some extra support throughout the process, Claim-Smart can help explain your options and guide you through your claim.
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