Motor finance legal challenge to be heard in February 2027

The Financial Conduct Authority (FCA) has announced that the Upper Tribunal will hear the legal challenges to our motor finance compensation scheme in February 2027.

The scheme was challenged by three lenders, Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance and by Consumer Voice, represented by Courmacs Legal.

Whilst the scheme is currently partially suspended, the FCA says firms must keep preparing for the scheme and progress complaints as far as possible.

It is estimated that there are 12.1 million motor finance deals eligible for compensation averaging £829 each. The FCA’s redress scheme, covering agreements from April 2007 to November 2024, was initially set to begin this year.

With the scheme partially suspended, the FCA urged lenders to continuing complying with the rules that remain in force while preparing for the possibility that the scheme, or parts of it, could be quashed.

The Finance & Leasing Association (FLA) said that while the timetable extends the period of uncertainty for consumers and lenders, securing legal clarity is essential. Any redress arrangements must be fair, proportionate, and workable, providing confidence for consumers and certainty for the market.

FLA members finance almost 90% of new private car purchases in the UK, helping people get to work, access education and reach essential services. Motor finance keeps Britain moving and is part of the financial infrastructure that powers the real economy.

Resolving these challenges is therefore about more than the implementation of a redress scheme. It is about maintaining trust and supporting a competitive, sustainable market that continues to provide access to affordable motor finance.

Reacting to the announcement, Harry Charalambous, Principal at Broadstone, said “The confirmation of a hearing date provides some clarity on the timeline, but lenders cannot afford to put their preparations on hold while they wait for the legal outcome. The FCA has been clear that firms must continue progressing complaints and prepare for all potential outcomes, including a no-scheme scenario where the usual complaint-handling process and statutory timescales will apply.

“Historic data gaps, legacy system issues, identifying the right customer population and building robust redress calculation processes all take time to address. Lenders should use this period to strengthen their operational readiness and contingency planning. Those that wait for complete legal certainty risk facing a compressed timeframe to resolve complex historic complaints, placing significant pressure on resources and increasing execution risk.”