Updates on the FCA Motor Finance Redress Scheme

Introduction

On 30 March 2026, the Financial Conduct Authority (the “FCA”) published its motor finance redress scheme (the “Scheme”).¹See our previous client alerts on the Supreme Court decision and the announcement of the redress scheme. The Scheme is aimed at resolving the vast number of claims and potential claims in relation to historic motor finance commission arrangements which were not adequately disclosed to consumers. However, recent legal challenges have put the Scheme, at least in its current proposed form, in doubt.

The Scheme follows the Supreme Court’s judgment in Johnson v FirstRand and requires lenders to presume that an ‘unfair relationship’ (within the meaning of s.140A of the Consumer Credit Act 1974) existed between lender and consumer wherever a relevant arrangement was not adequately disclosed, and that such an unfair relationship caused the consumer to suffer loss or damage. Its purpose is to provide a structured, orderly means of delivering redress to affected consumers promptly and at scale. The FCA had taken the significant step of pausing motor finance complaints since 11 January 2024 to facilitate this process.

Certain recent legal challenges have put the Scheme, at least in its current proposed form, in doubt.

Recent Developments

Legal Challenges

Since the Scheme was announced, four separate legal challenges have been brought against it before the Upper Tribunal. On 1 May 2026, the FCA confirmed that it had received challenges from one consumer-interest group and three separate lenders. The applicants argue that the rules governing the Scheme (the “Rules”) are unlawful, either as a whole or in part, and have asked the Tribunal to quash or invalidate them.

The challenges engage a broad range of issues, including:

• the FCA’s power to make the Rules and its approach to identifying consumers’ losses;
• the application of the Rules to agreements entered into before 1 April 2014;
• the FCA’s application of the law on limitation periods;
• the presumptions of unfair relationship and causation;
• the methodology for calculating redress; and alleged unlawful interference with lenders’ property rights under the Human Rights Act 1998.

Notably, the challenges are coming from ‘all sides’: across the four challenges, it is argued that the FCA’s approach has been unduly favourable to consumers and to lenders. The FCA has stated its intention to “defend the scheme robustly as lawful and the best way to resolve such a widespread, long-running and complex issue”. If the Upper Tribunal were to quash the Rules in whole or in part, this would have significant implications for the c.£9.1 billion redress process.

FCA Contingency Planning

In response to the legal challenges, the FCA published a further statement on 8 May 2026 setting out revised guidance and contingency planning. The FCA’s approach going forward is for lenders to continue preparing to implement the Scheme, but with flexibility to adapt based on the Upper Tribunal’s ruling. The deadline of 12 May 2026 for submissions of implementation plans was maintained; however, firms are no longer required to communicate with customers by the deadlines set out in the original scheme timetable.

Critically, the FCA has outlined planning for a ‘no-scheme scenario’. Under this contingency, lenders would need to be ready for a complaint-led and supervisory approach to resolve historic liabilities. The FCA’s indicative assumptions include that it will continue to encourage consumers to complain directly to their lender; there will be no further extension of the ‘complaints pause’; lenders would need to draw on the Supreme Court and High Court judgments and the Tribunal’s reasoning in the absence of further FCA rules or guidance on redress methodology; the FCA would work closely with the Financial Ombudsman Service; and the FCA would consider using supervisory (and, if necessary, enforcement) powers to require firms proactively to contact affected customers who have not complained. It appears therefore that, regardless of the outcome of the current legal challenges, the FCA still wishes to see that the many historic claims are resolved and that redress is delivered to affected consumers, even if on a less structured basis than was originally envisaged.

Joint Regulatory Taskforce

On the same date that the Scheme was announced, the FCA announced a joint regulatory taskforce with the Solicitors Regulation Authority, the Information Commissioner’s Office, and the Advertising Standards Authority. The taskforce is directed at tackling poor handling of motor finance claims by claims management companies (CMCs) and law firms. It targets issues including misleading advertising, meritless claims, multiple representation, and unfair exit fees.

The establishment of this taskforce reflects regulatory concern that the volume and complexity of motor finance redress claims is creating opportunities for poor practice which may ultimately harm the consumers the Scheme is designed to protect. Firms and CMCs active in this space should expect increased scrutiny of their conduct when handling claims.

Looking ahead

The legal challenges to the Scheme represent a significant development with the potential to, once again, reshape the motor finance redress landscape. They may result in a radically altered Scheme, or no Scheme at all. 

The FCA has indicated that lenders should prepare on a precautionary basis for a Tribunal decision to be handed down in mid-November 2026. There are reports that the separate challenges may be consolidated and the timing of the initial hearing expedited; however, a hearing timetable has not yet been fixed, and the proceedings could extend into 2027.

We will continue to monitor these developments closely.