Millions of UK consumers who bought a car on finance are now facing a significant delay to redress payments, after the Financial Conduct Authority (FCA) admitted legal challenges put the official free-to-access scheme in doubt.
In an update published on Friday 8 May, the regulator admitted there's a scenario in which there is “no scheme”, with consumers instead having to raise individual complaints, possibly through potentially costly court action.
While it couldn't put an exact timeline on the four legal challenges that could result in the scheme’s collapse, the FCA said more would be known by mid-November 2026, at which point lenders would be expected to handle complaints within normal statutory deadlines.
The FCA said: “Complaints cannot be paused indefinitely.”
The regulator added that if the compensation scheme or parts of it are struck down, it may need to consider a revised approach, which could itself face further legal challenges and delays.
When the Motor Finance Redress Scheme was revealed at the end of March, the FCA promised payouts averaging £829 per car that was bought on finance between 2007 and 2024.
The FCA still insists consumers should receive compensation where they lost out through unfair commission arrangements; and said it remains committed to an industry-wide scheme which it believes would deliver redress “as quickly as possible”.
However, four legal challenges have now been launched against the proposed scheme from three finance companies and one consumer group.
The FCA admitted that it's unclear when the legal case will even be heard, admitting that it's “unlikely to be before October”.
The regulator also revealed it's now preparing for the possibility that its entire compensation scheme could fail.
If that happens, consumers may instead need to pursue complaints directly with lenders on an individual basis rather than through a centralised redress programme.
The FCA warned that it's now “prudent” to prepare for a “no scheme” scenario, which would likely result in a more fragmented and lengthy complaints process.
The regulator also acknowledged that a complaint-led system could also mean some affected motorists never receive compensation at all.
In this scenario, the FCA said it would consider using supervisory powers to force lenders to proactively contact affected customers who hadn't submitted complaints.
It also urged consumers who believe they may have been affected by commission arrangements to continue complaining directly to lenders rather than going through claims management firms, which will take a share of any compensation.
