FCA prepares contingency plans as legal challenges threaten motor finance compensation timetable
The Financial Conduct Authority has warned that legal challenges against its proposed motor finance compensation scheme could significantly delay payouts to consumers affected by historic commission arrangements in the car finance market.
In a statement published on 8 May, the regulator said its priority remains securing “fair compensation for consumers as quickly as possible” while maintaining stability across the motor finance sector.
The FCA said it remains unclear when the case will be heard, although it is “unlikely” to take place before October 2026. The regulator added that it is engaging with the Tribunal and parties challenging the scheme on “the possibility of suspending some elements of it while retaining those relating to preparatory work”.
The FCA also acknowledged the wider impact of the ongoing uncertainty, stating: “We recognise the operational strain and uncertainty firms face. We also acknowledge the frustration of consumers, many of whom have waited over 2 years for an answer.”
The compensation scheme was introduced in March 2026 to address widespread failings linked to motor finance commission arrangements between 2007 and 2024. Courts previously found that some lenders and brokers failed to properly disclose commission arrangements to consumers. The FCA has described its industry-wide scheme as the “quickest, fairest and most cost-effective” route to compensation.
According to the regulator, the legal challenges argue that parts of the rules governing the scheme are unlawful. Some applicants claim the scheme is too favourable to consumers, while others argue it is too favourable to lenders. The disputes cover several areas, including compensation calculations, limitation periods, lender liability and the FCA’s powers to impose the rules.
The FCA said firms should continue preparing for the scheme despite the ongoing litigation. Lenders have been instructed to identify relevant complaints and agreements, gather commission data and cooperate with the Financial Ombudsman Service. Implementation plans must still be submitted by 12 May, although the regulator said it would not insist on formal attestations at this stage.
The regulator also confirmed it is preparing contingency plans in case the scheme is overturned entirely or partially. The FCA said: “If the scheme, or parts of it, were quashed, we would need to carefully consider all options, taking account of all relevant matters. That would include whether to proceed with a revised scheme. This would likely require further consultation, and any resulting rules or guidance could face further lengthy challenge.”
The statement continued: “It is therefore now prudent for us to supervise all lenders against a central planning assumption that under that scenario there would be no scheme. Lenders need, therefore, to be operationally and financially ready for a complaint-led and supervisory approach to resolve historic liabilities.”
The FCA acknowledged the consequences such an approach could have for both firms and consumers. It stated: “We recognise the impact this would have on consumers who may not always complain. This would also impose significant extra costs on lenders, which is why we are being clear on our indicative assumptions now to allow adequate time for orderly contingency preparation.”
The regulator added that it expected all lenders to prepare for that possibility, “including ensuring appropriate provisions and by engaging with their auditors”.
The FCA also advised consumers to complain directly to lenders rather than using claims management companies or law firms, which may charge fees exceeding 30% of any compensation received. It warned consumers not to sign agreements with multiple firms, as they could face multiple charges.
The regulator acknowledged growing frustration among affected consumers, many of whom have already waited more than two years for clarity on potential compensation.