Bite-size: FCA sets out motor finance scheme position following legal challenges and Tribunal proceedings
On 8 June 2026, FCA Chief Executive Nikhil Rathi wrote to Dame Meg Hillier MP, Chair of the Treasury Committee, setting out the FCA's detailed position on the Motor Finance Compensation Scheme in response to questions raised by the Committee on 20 May 2026.
The letter is a substantive public document covering the consequences of four legal challenges lodged by 27 April 2026, the revised compensation timetable, the FCA's expectations of firms, and wider lessons for Parliament and the regulatory framework. With the complaints pause having expired on 31 May 2026 and Tribunal proceedings now under way, the letter carries immediate operational significance for all motor finance lenders, brokers, and claims management companies (CMCs).
The FCA confirmed that approximately 12 million agreements are due compensation and that the scheme remains its preferred route, describing it as "the quickest, fairest and most efficient way to deliver compensation." Three captive lenders, each providing finance tied to a specific vehicle manufacturer's brand, submitted challenges on 27 April, joined by Consumer Voice, a limited company represented by Courmacs Legal Ltd. No UK or international bank has challenged.
The FCA does not expect the Tribunal to hear the case before October 2026; if the scheme is upheld, payments are expected to begin in 2027. If the scheme is struck down, a revised scheme would be unlikely to result in payouts before the second half of 2027 or early 2028, though a complaints-led approach could see many consumers receive compensation within the eight-week statutory timetable.
The FCA has been explicit about its expectations of firms in the current period. All lenders subject to the scheme must continue preparing unless the FCA directs otherwise, notwithstanding the challengers' request that parts of the scheme be suspended. Firms must identify in-scope complaints and agreements, collect commission and disclosure data from brokers, resolve duplicate representation issues, and cooperate fully with the Financial Ombudsman Service (FOS). The FCA expressed concern that "many are not as ready as we would expect" and warned that delays in providing senior management attestations to implementation plans will not be tolerated indefinitely. Firms must also hold sufficient capital in the UK and make proper provisions for possible liabilities; the FCA stated it will take "strong action, including business restrictions," where firms do not have the right financial resources in place, noting there is no FSCS cover in motor finance if a firm fails. The FOS has reported that cooperation from some motor finance lenders is "patchy," and the FCA confirmed it will act where shortfalls are identified, with the same expectation applying to brokers.
The letter situates the motor finance scheme within a broader set of regulatory and legal developments. HM Treasury's proposed targeted amendments to the Consumer Credit Act through the Financial Services and Markets Bill do not yet extend to unfair relationships, leaving a gap the FCA acknowledged. The FCA has flagged concerns about the fragmented regulatory framework governing CMCs and law firms, noting the ICO received over six million complaints about nuisance claims marketing this year alone, and that 1.3 million of 4.7 million motor finance complaints surveyed across 13 large lenders involved multiple representation. A joint taskforce with the SRA, ICO, and Advertising Standards Authority is active, with two enforcement investigations confirmed. The FCA has called on Parliament to consider reforms to section 404 FSMA to reduce avoidable delay in contested redress schemes and to examine whether the current fragmented system for handling mass consumer harm remains fit for purpose.
Key takeaway
Treat the complaints pause expiry as your operational baseline.The pause expired on 31 May 2026. Default statutory timelines now apply in the absence of a scheme, and firms cannot wait for Tribunal clarity before acting.
Maintain and advance your implementation plan. Commission and broker disclosure data must be collected, in-scope complaints and agreements identified, and duplicate representation resolved. Senior management attestations remain a live requirement.
Stress-test your capital position now. Firms must hold sufficient capital in the UK and make proper provisions for potential liabilities across all scenarios, including a no-scheme outcome. The FCA will test this through supervision and has signalled business restrictions for firms that fall short.
Plan in parallel. With the Tribunal hearing unlikely before October 2026, firms must operate dual-track planning, covering both a live scheme and a complaints-led alternative. The FCA has provided initial central planning assumptions for the no-scheme scenario; these should be built into operational and financial forecasts.
Uncertainty remains the primary risk. The outcome of the legal challenges cannot be predicted, and further challenge to any revised scheme remains possible. Firms and their boards should ensure governance arrangements reflect the range of potential outcomes and that consumer communications are kept current.
