The Financial Conduct Authority (FCA) has issued a further update on its proposed motor finance compensation scheme following a series of legal challenges brought by both consumer groups and lenders. While the news may create some uncertainty in the short term, the FCA has made it clear that it still intends to press ahead with a redress scheme designed to compensate millions of motorists who may have been mis-sold car finance.
For consumers with an active motor finance claim, the key message is simple: you do not need to do anything right now.
What Is Happening?
The FCA’s compensation scheme was introduced to address unfair commission arrangements used in motor finance agreements between 2007 and 2024. The regulator estimates the scheme could return billions of pounds to affected consumers.
However, the scheme is now facing legal challenges from two opposing sides:
- Consumer group Consumer Voice argues that the proposed compensation levels are too low and that consumers could be undercompensated.
- Several lenders, including Mercedes-Benz Financial Services and Volkswagen Financial Services, argue that the scheme goes too far and is too expensive for firms.
The FCA has confirmed it will defend the scheme “robustly” and continues to describe it as the quickest and fairest way to compensate consumers.
Will Compensation Be Delayed?
Potentially, yes.
The FCA has stated that it is unclear when the legal challenges will be heard, and it is “unlikely” to be before October 2026.
As a result, compensation payments may take longer than originally expected.
That said, the FCA has also confirmed that firms should continue preparing for the scheme in the meantime, including identifying affected agreements and gathering the relevant commission data.
At Bott and Co, we continue to monitor developments closely and remain optimistic that compensation payments will still begin once the legal process becomes clearer.
Could Consumers Receive More Compensation?
Possibly.
One of the legal challenges argues that the FCA’s proposed compensation formula does not go far enough. If that challenge succeeds, some consumers could receive higher redress payments than currently anticipated.
Current industry estimates suggest average compensation could be around £800 per agreement, although every claim will depend on the specific finance arrangement and the level of commission involved.
Importantly, compensation may also include interest, meaning delays do not necessarily reduce the final amount consumers receive.
What Should Consumers Do Now?
If you have already instructed Bott and Co to handle your claim, there is nothing further you need to do at this stage.
Your claim remains registered and we will continue progressing matters on your behalf as the situation develops.
If your lender contacts you directly, you should simply confirm that Bott and Co Solicitors are acting for you.
Consumers who have not yet made a complaint should still consider doing so. The FCA continues to advise motorists to submit complaints if they believe they were affected by unfair motor finance commission arrangements.
What Happens Next?
The FCA has said it will continue engaging with lenders, consumer groups and the Tribunal while contingency planning continues. Further updates are expected in the coming months.
While the legal challenges may delay the rollout of the compensation scheme, they do not mean claims are ending or that consumers are no longer entitled to redress.
We will continue updating our clients as soon as further announcements are made.