The Upper Tribunal has partially suspended the FCA’s proposed industry-wide motor finance redress scheme, pending legal challenges from a number of commercial parties. The hearing is now scheduled for either 14 – 18 December 2026 or 16 – 26 February 2027, with the final dates dependent on any applications for further expert evidence or disclosure.
Compensation payments are now unlikely to begin before 2027, and if the scheme is overturned and the FCA has to consult on a revised approach, that timeline could stretch even further.
Firms hoping this buys breathing room should think again, the regulator has made clear that it doesn’t.
What’s actually suspended
Firms are not required to calculate or pay redress, or send compensation communications in line with the original scheme timetable, however, firms must continue to:
- Identify in-scope complaints and affected finance agreements
- Collect, validate and remediate customer and commission data, including information held by brokers
- Respond to complainants who are not owed compensation under the scheme, within the relevant deadlines, unless:
- The firm considers the complaint was out of time when the scheme was made
- The complaint involves a contractual tie and the firm is relying on the ‘captive lender exception’ to conclude that no unfair feature was present
Why the FCA is maintaining pressure to act
The regulator has been explicit that it’s concerned some firms are less prepared than expected. That concern predates the suspension and hasn’t gone away because of it. If anything, the Tribunal’s order allows firms to keep building operational capability (without wasting effort on work that might need repeating if the challenges succeed). Firms pausing preparation effectively walk past the opportunity to optimise their approach for when the terms of the scheme are eventually concluded, despite reminders of readiness expectations from the FCA.
The FCA continues to be of the view that an industry-wide scheme is the quickest, fairest and most efficient way to deliver compensation, and says it will defend it robustly. But it has also been candid that other outcomes remain on the table, including the possibility that no formal scheme survives the legal process, in which case the FCA has indicated it may instead direct lenders to resolve complaints individually through the usual process.
As with any uncertainty, contingency planning and maintaining readiness means more opportunity for firms to continue delivering their business-as-usual operations uninterrupted. Firms that have built flexible, well-documented operational capability won’t much care which scenario materialises. Firms that haven’t will find themselves in a very different position, regardless of which way the Tribunal rules.
What good preparation looks like right now
The FCA’s expectations map onto five practical priorities:
- Scoping – knowing precisely which complaints and agreements fall inside the scheme’s boundaries, and which don’t.
- Data integrity – commission and customer data collected, validated, and ready to support remediation at pace, regardless of format.
- Communication discipline – keeping customers informed, distinguishing scheme from non-scheme elements within mixed complaints, and being upfront about delays with those still waiting
- Third-party coordination – working constructively with claims management companies on multiple representation issues, and staying engaged with the Financial Ombudsman Service on live complaints
- Contingency planning – building the flexibility to implement whatever final approach emerges, rather than betting everything on one outcome
The bottom line
Where the clock on compensation has temporarily stopped, the clock on readiness hasn’t. Firms able to treat the suspension as an opportunity to refine their understanding of their exposure will be best placed, whether the scheme survives the Tribunal intact, emerges in modified form, or disappears altogether in favour of case-by-case resolution.
The prudent course is the same one the FCA has been signalling since the challenges began: keep building, keep documenting, and stay ready for one of a number of outcomes.
*If you’d like to discuss how these developments affect your firm’s motor finance readiness programme, get in touch with the team at Square 4 Partners.*
