7:46 am, May 11, 2026
The Financial Conduct Authority (FCA) is urging motor finance lenders to continue preparing for its proposed redress scheme despite legal challenges that could delay compensation payouts until at least late 2026.
In an update published on May 8, the watchdog said it remains committed to securing ‘fair compensation for consumers as quickly as possible’ while also ensuring ‘a healthy motor finance market’.
Car Dealer reported last month that multiple legal challenges have been launched against the proposed scheme from big hitters such as Mercedes-Benz, who are not happy with its plans for redress, which would result in an estimated average of £829 per payout.
The regulator now says that hearings are unlikely to take place before October, and it is now discussing whether parts of the scheme can be temporarily suspended while firms continue preparatory work.
The FCA acknowledged the growing frustration among consumers, many of whom have been waiting more than two years for clarity on potential compensation linked to historic motor finance commission arrangements.
Despite the uncertainty, the regulator told lenders they should continue preparing for the scheme unless instructed otherwise.
Work expected to continue includes identifying relevant complaints and agreements, gathering commission and disclosure data – including information held by brokers – and cooperating with the Financial Ombudsman Service (FOS) on existing complaints.
Lenders are also still expected to submit implementation plans by May 12, although the FCA said it would not insist on formal attestations at this stage because of the ongoing legal action.
It added that it would be ‘pragmatic’ about customer communications and would not currently require firms to contact consumers in line with the original scheme timetable.
At the same time, the FCA said firms must now prepare for a possible ‘no scheme’ outcome if the Upper Tribunal quashes all or part of the proposed rules.
Under that contingency scenario, lenders would instead face a complaint-led process, with firms expected to handle complaints within standard statutory timeframes from mid-November 2026.
The FCA warned that complaints ‘cannot be paused indefinitely’ after the unprecedented freeze introduced on January 11, 2024.
It said there would be no further extension to the complaints pause under its current assumptions and lenders should ensure they are ‘operationally and financially ready’ for potentially large volumes of complaints.
It also confirmed that, if the scheme failed, there would not immediately be further FCA rules or guidance on redress calculations, meaning firms would need to rely on existing court judgments and tribunal decisions.
The FCA stressed that a complaint-led process would likely create ‘significant extra costs’ for lenders and risk leaving some affected consumers uncompensated if they failed to complain.
Consumer guidance
The watchdog again urged motorists concerned about commission arrangements to complain directly to their lender rather than using claims management companies (CMCs) or law firms.
It warned that some firms could charge more than 30% of any compensation awarded and advised consumers not to sign up with multiple representatives because they may incur several fees.
The FCA also encouraged firms to report concerns about the conduct of CMCs and law firms as part of its wider review of claims management activity linked to the motor finance scandal.
More on the FCA redress scheme…
- FCA hits out at lenders over redress challenge that will create ‘fresh uncertainty for millions’
- Mercedes-Benz and two other firms to challenge FCA over motor finance redress scheme
- £7.5bn compensation scheme for motor finance scandal revealed by FCA
- Close Brothers Motor Finance estimates 720,000 of its loans will qualify for redress scheme
- FCA bans fake Martin Lewis motor finance ads after ‘unauthorised clips’ used
