Motor finance compensation hearing set
The Upper Tribunal has set a hearing date for legal disputes regarding the Financial Conduct Authority’s (FCA) motor finance compensation scheme, scheduled for February 16-26, 2027. The confirmed timetable means lenders, car dealers and consumers will have to wait until next year for greater clarity over the future of the £9bn redress scheme.
A decision is anticipated in the months following the hearing, potentially prolonging uncertainty around compensation payments into 2027. The scheme faces challenges from Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance. Additionally, Consumer Voice, represented by Courmacs Legal, has initiated a separate challenge from the consumer perspective.
Disputes Over Compensation Scheme
Parts of the compensation scheme remain suspended while the challenges are considered. Lenders are not currently required to calculate or pay compensation under the suspended rules. However, the FCA said finance providers must continue preparing for the scheme and progress complaints as far as possible.
The regulator has also told lenders to plan for the possibility that the scheme, or parts of it, could be quashed by the Upper Tribunal.
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Should this occur, there may be no industry-wide compensation scheme, and the current pause on complaint handling could be lifted. Lenders would then need to address complaints through standard procedures and within regular statutory timeframes, potentially imposing a significant operational burden.
Preparations and Financial Provisions
Volkswagen Financial Services has allocated £725 million for potential redress, while BMW Financial Services has set aside £611.6 million. Significant provisions have also been reported by RCI Financial Services, Stellantis Financial Services, and Mercedes-Benz Financial Services.
The delay also prolongs uncertainty for dealer groups and independent car dealers whose finance partners are allocating capital and operational resources to complaint handling and potential compensation costs. The Finance & Leasing Association (FLA) – whose members finance almost 90% of new private car purchases in the UK – noted that while the timetable extends the period of uncertainty for consumers and lenders, securing legal clarity was essential.
Harry Charalambous, principal at Broadstone, a banking and credit advisory consultancy, remarked: “The confirmation of a hearing date provides some clarity on the timeline, but lenders cannot afford to put their preparations on hold while they wait for the legal outcome.”
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Kevin Durkin, solicitor-advocate and director at HD Law, stated: “Based on our experience successfully representing consumers through the court system, we believe that more than 45% of claims will still need to be pursued through litigation, even if the FCA scheme comes into force, whenever that may be.”
The regulator must provide various datasets as well as its DCA Commission Model Impact Analysis, including the computer code or scripts underlying its matching methodology, and its DCA Commission Model Ban Impact Analysis. Lenders have been granted permission to engage economic experts, and Consumer Voice may rely on reports from Dr Nils Gudat and Dr Pinar Bagci.
The FCA is also allowed to appoint its own economics expert to respond to the evidence presented by the challengers.
Expert Evidence and Analysis
CA Auto Finance and Volkswagen Financial Services may jointly appoint an economics expert to examine commission arrangements and the FCA’s evidence. Mercedes-Benz Financial Services has been granted permission to instruct an economics expert to examine differences between captive finance providers and third-party lenders.
