FCA Motor Finance Redress Challenges Set for February 2027 Hearing

The Upper Tribunal will hear four legal challenges to the Financial Conduct Authority’s motor finance consumer redress scheme between 16 and 26 February 2027, the FCA said in a statement published on 13 October 2026. 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.

The scheme is currently partially suspended, but firms must keep preparing for it and progress complaints as far as possible, the FCA stated. It described the scheme as “the quickest, fairest and most efficient way to compensate consumers” and said it will defend it robustly. A judgment is expected in the months following the hearing, and until the legal process concludes lenders do not need to calculate or pay compensation under the scheme.

Tribunal Directions on Disclosure and Expert Evidence

The February dates were fixed in directions issued by the Upper Tribunal’s Tax and Chancery Chamber after it heard applications on 5 and 6 October 2026. The proceedings are listed under reference numbers UT-2026-000045 to UT-2026-000048, with CA Auto Finance UK Limited, Consumer Voice Limited, Mercedes-Benz (MBG.DE ) Financial Services UK Limited and Volkswagen Financial Services (UK) Limited as applicants and the FCA as respondent. All four applicants sought permission to rely on expert evidence, and three of them (CA Auto Finance UK, Consumer Voice and Volkswagen Financial Services) also sought specific disclosure.

The Tribunal directed the FCA to give further disclosure of its Loan-level dataset, Data Drop 1 and Data Drop 3, as well as the DCA Commission Model Impact Analysis, including the code or scripts underlying the FCA’s matching methodology, and the DCA Commission Model Ban Impact Analysis. The parties are to seek to agree the terms of a confidentiality direction covering that further disclosure and to inform the Tribunal as soon as possible what has been agreed or what cannot be agreed.

On expert evidence, CA Auto Finance UK and Volkswagen Financial Services may together adduce a single economics expert addressing whether the existence or inadequate disclosure of discretionary commission arrangements, high commission arrangements and tied arrangements results in harm to consumers, whether the FCA could have assessed the nature and extent of actual loss or damage caused by inadequate disclosure, and whether the schemes could readily have been modified to target unfairness more accurately. Mercedes-Benz Financial Services may adduce a single economics expert on how the captive segment of the motor finance market is identifiably distinct from third-party lending, whether the FCA identified and took account of such differences in designing the schemes, and whether there is any economic rationale to treat the market as homogeneous in determining the form and extent of redress. Consumer Voice may rely on the expert evidence of Dr Nils Gudat, in reports identified as Gudat 1, Gudat 2 and Gudat 3, and of Dr Pinar Bagci, in the report identified as Bagci 1. The FCA may rely on a single economics expert in response.

The parties must seek to agree a timetable for the further disclosure, the expert evidence and general case management of the proceedings. Failing agreement, the Tribunal will list a case management hearing for half a day conducted by video, and any party may apply for a case management hearing on short notice to the other parties and the Tribunal. The final hearing of the substantive applications is listed for nine days commencing 16 February 2027, with an additional four days of judicial pre-reading. The directions were issued by Mr Justice Thompsell and Upper Tribunal Judge Cannan.

Scheme Background and Challenge Timeline

The FCA introduced the industry-wide redress scheme in policy statement PS26/3 on 30 March 2026 to compensate motor finance customers who were treated unfairly between 2007 and 2024. The FCA states the scheme will put £7.5 billion back in people’s pockets, with millions of claims settled in 2026 and the vast majority by the end of 2027. It consulted on the proposed scheme in CP25/27, opened on 7 October 2025, and in December 2025 it extended, through PS25/18, the time firms have to send final responses to relevant discretionary commission arrangement and non-DCA commission complaints. Implementation periods were set to run up to 30 June 2026 for loans taken out from 1 April 2014 and up to 31 August 2026 for earlier agreements.

The FCA announced on 1 May 2026 that it had received the four challenges, noting that none of the claims was expressly in the name of individual consumers. That statement described motor finance as the second-largest consumer credit market, with £39 billion borrowed in 2024. On 2 July 2026 the Upper Tribunal made an order suspending parts of the scheme on terms agreed by the FCA with the four challengers. The Tribunal had initially indicated the challenges would be heard on 14 to 18 December 2026 or 16 to 26 February 2027, with the final dates dependent on whether applications for further expert opinion or disclosure of information were made and succeeded.

Under the partial suspension, firms are not required to calculate or pay redress, or send communications about compensation owed under the scheme, until the Upper Tribunal process concludes. They must continue to identify relevant complaints and agreements, gather the data needed to identify commission arrangements and disclosure practices, and tell complainants who are not owed compensation, subject to limited exceptions. Lenders generally must give those notifications by 18 November 2026 for agreements that began on or after 1 April 2014 where the customer complained by 30 June 2026, and by 18 January 2027 for earlier agreements where the customer complains by 31 August 2026; complaints made after those dates must be answered within five months.

In its latest statement, the FCA told lenders to comply with the scheme rules that remain in force, including sending letters to some consumers not owed compensation under the scheme. Firms should plan for the possibility that the scheme or parts of it are quashed, leaving no motor finance compensation scheme and no complaint-handling pause, and the FCA said it expects lenders to plan rigorously for that scenario, make the necessary financial provisions and engage with their auditors. Its July statement added that lenders should maintain appropriate capital and liquidity for that scenario in a UK regulated entity and that the regulator could take action, including imposing business restrictions, if firms do not have the right financial resources in place.

For consumers, the FCA reiterated that complaining directly to a lender is free and that no law firm or claims management company is needed, noting that such firms may charge up to 36% of any compensation. It warned against signing up with more than one claims management company or law firm, said any cancellation fee must be reasonable and reflect the work done, and pointed consumers to a template letter for complaints about how such firms have handled their claims.