Bite-size: FCA issues further guidance following motor finance redress scheme challenges

Following confirmation from the FCA that it had received four separate legal challenges to its Motor Finance Compensation Scheme, the FCA set out further guidance on Friday 8 May 2026. 

The FCA received four separate legal challenges to the Scheme, one challenge from a consumer group and three challenges from lenders. The FCA has stated that the challenges claim that the FCA's approach has been both "unduly favourable to consumers and unduly favourable to lenders".  The challenges relate to all three of the ‘relevant arrangements’ with which the scheme is concerned: 

• Discretionary Commission Arrangements;

• High Commission Arrangements; and 

• Tied Arrangements

The FCA has further confirmed that extensive aspects of the scheme have been challenged, including: 

• The FCA's powers to make the Rules relating to the scheme, and its approach to identifying consumers' losses in deciding that it has the relevant powers

• The application of the scheme to regulated motor finance agreements entered into before 1 April 2014

• The approach to limitation periods

• The rules for determining whether lenders are liable to pay redress to consumers and whether consumers have suffered loss or damage

• The rules governing the calculation of redress sums due to consumers

The multiple challenges to the scheme have resulted in the timing and the details of the scheme becoming unclear, resulting in operational difficulties for most lenders and further uncertainty for consumers. The FCA has stated that it will defend the challenges to the scheme ‘robustly’ but it remains unclear when the case will be heard with any hearing date being unlikely before October 2026. 

So what should firms do now? 

The FCA has stated that it recognises the operational strain and uncertainty that firms face. It has stated that despite this uncertainty, firms should continue to prepare for the scheme until the FCA communicates otherwise. In particular, the FCA has indicated that work preparation work should continue now in relation to: 

• Identifying relevant complaints and agreements

• Gathering the data needed to identify commission arrangements and disclosure practices, including where information is held by brokers

• Working with claims companies (CMCs) to resolve instances where consumers are represented by multiples CMCs

• Cooperating fully and promptly with the Financial Ombudsman Service on any existing complaints that may have been referred to it.

What about the 6 week submissions required by the FCA pursuant to the scheme? 

The FCA has stated that firms should still submit their implementation plans by 12 May 2026. However, these plans may be qualified and formal attestations will no longer be required by this date. 

One notable change in the FCA’s latest update is the removal, for now, of the requirement for formal senior manager attestations alongside the six-week submissions. However, firms are still expected to submit implementation plans by 12 May 2026. This distinction is important. While the FCA appears to recognise the current uncertainty around the scheme, it is still expecting firms to demonstrate active planning, governance and operational readiness. For many boards and SMFs, the focus now shifts towards evidencing decision making, oversight and contingency planning during a period where the final shape and timing of the scheme remains uncertain.

How should firms deal with complaints in the face of further delay? 

The FCA has stated that where complaints include both elements that fall within the scheme and elements that are unrelated to motor finance, it is currently considering its position as to whether firms should now progress the unrelated elements. It has confirmed that complaints that fall entirely outside the scope of the scheme should continue to be progresses in the usual way. 

The FCA has paused complaints relating to the subject matter of the scheme since 11 January 2024. The FCA has stated that complaints cannot be paused indefinitely and it has therefore noted that it is important for firms to now focus on contingency plans and prepare for the alternative scenario of now scheme which is likely to result in significant increases in complaint levels for many firms. The FCA has further warned that lenders need to be operationally and financially ready for a complaint-led and supervisory approach to historic liabilities. 

While firms remain in a position of real uncertainty in relation to the scheme, it would appear from the FCA's latest statement that firms are expected to continue to prepare to be operationally ready to commence the scheme while also contingency planning for multiple alternatives including the possibility of a revised scheme or no scheme at all. 

Key takeaway

We recognise that this uncertainty may cause concern for many lenders and, for firms seeking guidance, we are supporting clients across governance, operational readiness, complaints strategy, FCA engagement and contingency planning as the position develops. We are also continuing to support boards and senior managers through our Auxillias Board Blueprint, which focuses specifically on governance, SM&CR accountability and evidencing oversight as firms prepare for implementation and increased regulatory scrutiny.