Motor Finance Redress Scheme Suspended: What It Means for Your Claim

The Financial Conduct Authority's industry-wide motor finance redress scheme, expected to compensate millions of UK drivers mis-sold car finance between 2007 and 2024, has been partially suspended by the Upper Tribunal. The suspension, confirmed on 2 July 2026, follows a legal challenge from four firms and pauses the parts of the scheme that would see lenders calculate and pay out compensation, while leaving other obligations in place.

This is the latest development in what has become one of the largest UK consumer redress issues since PPI, with an estimated total scheme value of £9.1 billion. For anyone who has already complained, is thinking about complaining, or has simply seen the headlines and wants to know what actually happens next, here is what the suspension changes, what it does not change, and what to do right now.

What the redress scheme was actually for

Between 2007 and 2024, many car finance agreements were arranged through discretionary commission arrangements, known as DCAs. Under a DCA, the broker or dealer arranging the finance had discretion to set the interest rate charged to the customer, and was paid a higher commission by the lender the higher the interest rate they set. This created a direct financial incentive for brokers to charge customers more than necessary, without the customer being properly told that this arrangement existed or how it affected the price they paid.

Following a Court of Appeal ruling and a subsequent Supreme Court judgment, the FCA concluded that many of these arrangements amounted to an unfair relationship between lender and consumer under the Consumer Credit Act 1974, and proposed an industry-wide scheme rather than leaving millions of individual complaints to be resolved case by case through firms and the Financial Ombudsman Service.

How the legal background got here

Discretionary commission arrangements were banned by the FCA outright in January 2021, after years of concern that they gave dealers a direct financial incentive to charge customers more. But the current redress issue traces back further than the ban itself. In October 2024, the Court of Appeal issued an unexpectedly broad ruling that went well beyond DCAs, finding that car dealers owed customers a fiduciary or "disinterested" duty when arranging finance, and that any commission paid without the customer's fully informed consent could be unlawful, regardless of whether the arrangement was discretionary.

That ruling was appealed, and on 1 August 2025 the Supreme Court handed down its judgment in the conjoined cases of Hopcraft v Close Brothers, Johnson v FirstRand Bank and Wrench v FirstRand Bank. The Supreme Court overturned most of the Court of Appeal's reasoning, ruling that car dealers do not owe customers a fiduciary duty simply by arranging finance. However, it upheld one of the three claims, Mr Johnson's, on a narrower basis under section 140A of the Consumer Credit Act 1974, which allows a court to find an "unfair relationship" between lender and borrower. In Mr Johnson's case, the commission paid to the dealer was £1,650.95, representing 55% of the total charge for credit, and this was not disclosed to him. The size of the commission and its non-disclosure were central to the court's finding of unfairness.

This narrower Supreme Court judgment is what shaped the redress scheme that followed. Rather than the sweeping liability the October 2024 Court of Appeal ruling would have created, the FCA's scheme specifically targets DCAs and other commission arrangements that were not properly disclosed, rather than all commission payments industry-wide.

How big the industry impact has been

To put the current £9.1 billion scheme figure in context, the FCA's own estimates moved substantially over the course of 2025 as the legal picture became clearer. Before the Supreme Court judgment, some commentators warned the industry-wide cost could reach as much as £50 billion if the broader Court of Appeal ruling had been upheld in full. Following the narrower Supreme Court judgment, the FCA settled on a working estimate of £9 billion to £18 billion, before the current £9.1 billion figure was confirmed in the scheme's final policy statement.

Individual lenders had already begun setting money aside well before the scheme was finalised. Lloyds Banking Group, one of the largest motor finance providers through its Black Horse brand, had reportedly set aside £1.2 billion in provisions ahead of the Supreme Court ruling alone, a figure other lenders have since added to as the scheme has progressed. The scale of the underlying market gives some sense of why: according to the Finance and Leasing Association, in the 12 months to September 2024 UK consumers used regulated motor finance to buy 625,000 new cars, borrowing £17.4 billion, and 1.4 million used cars, borrowing a further £21.3 billion.

Against that scale, the FCA has estimated that most individual consumers who are owed compensation under the scheme will receive less than £830 per agreement, reflecting that the scheme is designed to compensate a very large number of people for a comparatively modest amount each, rather than a smaller number of large payouts.

What "suspended" actually means

The suspension does not switch the scheme off. It pauses specific parts of it, while requiring firms to keep working on everything else, so that progress is not lost if the legal challenge fails.

In practice, this means a lender can still tell a customer their complaint has been assessed and that no compensation is due, but cannot currently tell a customer they are owed money or pay them anything under the scheme itself, until the Tribunal process concludes.

Who is challenging the scheme, and why

Four parties brought the legal challenge: Consumer Voice, a consumer rights group represented by Courmacs Legal; Volkswagen Financial Services; Mercedes-Benz Financial Services; and Credit Agricole Auto Finance. Their grounds for challenge differ. Consumer Voice's challenge concerns how compensation is calculated under the scheme, arguing the method could leave millions of consumers under-compensated. The lender and manufacturer finance arms challenging the scheme are contesting more fundamental questions, including whether the FCA has the legal power to make the rules at all, how the rules apply to agreements entered into before 1 April 2014, and how limitation periods affect whether a consumer is treated as having suffered a loss.

What happens next: two scenarios

The Upper Tribunal is expected to hear the case in December 2026 or February 2027, with a judgment expected some months after that. Two broad outcomes are possible.

If the scheme is upheld and not further appealed, the FCA expects compensation payments to begin during 2027, broadly in line with the original timetable once the pause is lifted. Firms have already been told to keep preparing on that basis.

If the scheme is quashed, in part or in full, the FCA has said it will need to decide what to do next. One option floated by industry commentators is that the FCA could abandon the industry-wide scheme altogether and instead require lenders to handle claims individually through the normal complaints process and the Financial Ombudsman Service, without a standard compensation formula. This route would likely push realistic compensation timelines back to 2028 or later for many consumers, since individual complaints take longer to resolve than an industry-wide calculation applied at scale.

Which agreements are most likely to be affected

Not every car finance agreement falls within scope. The scheme is aimed specifically at agreements arranged through a dealer or broker acting as a credit intermediary, where the dealer had discretion over the interest rate charged and earned more commission the higher that rate was set, and where this arrangement was not properly disclosed. Agreements taken out directly with a lender, with no dealer or broker involved in setting the rate, generally fall outside the scheme's core focus. The higher the commission as a proportion of the total charge for credit, and the less it was disclosed at the point of sale, the stronger the case for compensation is likely to be. The Johnson case that survived the Supreme Court's otherwise narrow judgment involved commission representing 55% of the total charge for credit, which the court treated as a powerful indicator of unfairness in its own right.

Both new and used car finance agreements can be affected, and the scheme's scope runs back to 2007. Anyone unsure whether their own agreement involved a discretionary commission arrangement can ask their lender directly, since lenders are required to hold and disclose this information on request, suspension or no suspension.

How the two sides are reacting

Reaction to the suspension has come from both directions. The National Franchised Dealers Association, representing car dealerships, described the partial suspension as an operational pause that gives the sector time to prepare properly rather than working to a timetable it argues was unrealistic. On the other side, Consumer Voice, one of the four parties bringing the legal challenge and represented by Courmacs Legal, is specifically contesting the compensation calculation method itself, arguing that as currently designed it risks leaving millions of consumers under-compensated relative to what they actually lost.

The FCA has been consistent throughout in defending the scheme as designed, describing it as the quickest, fairest and most efficient route to compensating consumers at scale compared with the alternative of millions of individual complaints working through firms and the Financial Ombudsman Service one at a time over a period of years.

What you should do right now if you think you are owed money

The FCA's own advice has not changed because of the suspension: the best thing a consumer can do is complain directly to their lender now, free of charge. Complaining now means a complaint is already in the system and will be assessed once the pause lifts, rather than waiting to be contacted.

Lenders are still required to write to consumers within three months of the end of their implementation window (30 June 2026 for Scheme 2 firms, 31 August 2026 for Scheme 1 firms) once the pause is lifted, to confirm whether they are owed money and how much. Anyone who has not complained will only be proactively contacted if the lender believes they are likely to be owed compensation, within six months of the end of the implementation period. Anyone not contacted by then still has until 31 August 2027 to make a claim directly.

Not every agreement is covered. High-value loans, defined as amounts higher than 99.5% of other loans taken out that year, fall outside the scheme because it is designed for the mass consumer market. Anyone with a high-value agreement they believe was mis-sold can still complain to their lender directly and, if unresolved, to the Financial Ombudsman Service.

Watch out for scams

The FCA has repeatedly warned that a redress scheme of this size and profile attracts scam activity. Genuine compensation under the scheme will never require an upfront fee, and no genuine lender will ask for a PIN or online banking login details to process a payout. The FCA operates a dedicated motor finance scams helpline, and anyone contacted out of the blue about car finance compensation can verify the contact is genuine using the details listed on the FCA's own website rather than a number or link supplied in the message itself. If the trading name matches but a phone number does not look right, the FCA offers a direct verification line on 0300 124 8899 and will put callers through to the genuine lender.

Separately, claims management companies and law firms have been actively advertising for motor finance claims, in some cases charging fees of up to 36%, including VAT, of any payout for work a consumer can do themselves, free, by complaining directly to their lender. Since the scheme itself is designed to be free to use, there is no compensation advantage to using a paid claims company, only a reduction in the amount ultimately received. The FCA and the Solicitors Regulation Authority have jointly warned that some claimants have ended up with as many as four different representatives for the same claim, each risking a separate termination fee if the customer tries to cancel the duplicates. Two FCA-regulated claims firms have already agreed to change their termination fee policies as a result, protecting an estimated 70,000 consumers from excessive charges.

Frequently asked questions

Has the motor finance compensation scheme been cancelled?

No. The Upper Tribunal has suspended specific parts of the scheme, mainly the calculation and payment of compensation, while a legal challenge is heard. Firms must still prepare and progress complaints.

Should I still complain to my lender now?

Yes. The FCA's advice is to complain directly to your lender now, free of charge, so your complaint is already in the system once the suspension lifts.

When will compensation payments start?

If the scheme survives the legal challenge and is not appealed, the FCA expects payments to begin during 2027. If the scheme is quashed, timelines could push back to 2028 or later.

Do I need to pay a claims company to get compensation?

No. The scheme is designed to be free to use. Claims management companies can charge up to 36%, including VAT, of any payout for work you can do yourself by complaining directly to your lender.

What is the final deadline to complain?

31 August 2027 for all consumers, regardless of the outcome of the ongoing legal challenge.