Motor finance redress scheme suspended: where it stands

What the scheme actually is

The scheme is not a proposal. Following the Supreme Court’s ruling of 1 August 2025 and a consultation that drew over 1,000 responses, the FCA published PS26/3 on 30 March 2026 and established a mandatory industry-wide consumer redress scheme under its section 404 powers. It addresses motor finance agreements between 6 April 2007 and 1 November 2024 where commission arrangements or lender ties were poorly disclosed, which the FCA considers frequently created an unfair relationship under section 140A of the Consumer Credit Act 1974.

Two figures circulate and they are not interchangeable. The FCA estimates £7.5bn in redress at an assumed 75% uptake; £9.1bn is the total bill including administration and operational costs. Both fell from the consultation estimates, largely because the FCA tightened eligibility and lowered its assumed uptake rate from 85%.

The FCA split what began as one scheme into two, specifically to stop a legal challenge to the older agreements delaying redress for everyone. Scheme 1 covers agreements from 6 April 2007 to 31 March 2014, with an implementation deadline of 31 August 2026. Scheme 2 covers 1 April 2014 to 1 November 2024, and its implementation deadline passed on 30 June 2026.

The four challenges and what they suspended

The split did not prevent the challenge. Four parties applied to the Upper Tribunal (Tax and Chancery Chamber) under section 404D(1) FSMA: three lenders, CA Auto Finance UK, Mercedes-Benz Financial Services UK and Volkswagen Financial Services UK, and the consumer rights group Consumer Voice, represented by Courmacs Legal. The lender challenges and the consumer challenge pull in opposite directions. Consumer Voice contests how compensation is calculated, arguing the methodology disadvantages consumers; the lenders contest the scheme’s breadth and legal basis.

On 1 July 2026 the Tribunal made a suspension order on terms agreed between the FCA and the four challengers. It is partial by design, letting firms keep preparing while avoiding work that would need redoing if the challenges succeed.

Suspended: the requirement to calculate or pay redress, and to send communications to customers about compensation owed, in line with the scheme timetable.

Not suspended, and firms must still do it: identify relevant complaints and agreements, gather the data needed to establish commission arrangements and disclosure practices including where brokers hold it, and respond by the scheme deadlines to complainants who are not owed compensation under the scheme.

That last obligation is the one being missed. A consumer who is not entitled to redress still gets a decision from their lender on the original timetable. The suspension pauses payment, not the machinery around it.

The timetable solicitors are now working to

The Tribunal will hear the challenges either from 14 to 18 December 2026 or from 16 to 26 February 2027. Which window applies depends on whether any party successfully applies for further expert evidence or disclosure. Judgment is expected in the months following, so a final answer on the scheme’s lawfulness realistically lands in 2027, with payments following after that.

The deadline for applying to be added as an Interested Party has already passed: the Tribunal’s directions order of 1 July required applications by 11.59pm on 4 August 2026. Firms that wanted a formal voice in the proceedings and did not apply are now observers.

Meanwhile the courts are consolidating the parallel litigation. In July 2026 the Court of Appeal declined to break up a group of more than 5,000 motor finance claims, keeping them together rather than dispersing them. Regulatory redress and court-based claims are running simultaneously, not sequentially, which is the practical reality behind the redress-versus-litigation question.

What this means for claimant and defence firms

The strategic question has narrowed since the scheme was made. It is no longer whether regulatory redress will displace litigation, but how firms manage clients through an eighteen-month gap between a scheme that exists in law and a scheme that pays.

For claimant firms, the immediate risks are client expectation and cash flow. Clients told in early 2026 to expect compensation that year now face a wait into 2027 at the earliest, and possibly no scheme at all if the challenges succeed in full. The FCA continues to encourage consumers to complain directly to their lender, which remains free, as does escalation to the Financial Ombudsman Service. Firms charging for what a consumer can do without them should expect that to attract attention, and the SRA’s proposals on litigation funding and consumer claims sit directly on this territory.

For firms advising lenders, the FCA has been explicit that contingency planning should include the possibility of no scheme. If the Tribunal quashes it in part or in full, scope and quantum fall to be determined from the Supreme Court judgment and the Tribunal’s own reasoning, which is a materially different exercise from applying the FCA’s methodology. That has audit and provisioning consequences now, not in 2027.