Motor finance redress heads to tribunal: lenders told to plan for a world without the scheme

The Upper Tribunal has set 16 to 26 February 2027 as the window to hear legal challenges to the FCA's motor finance compensation scheme, with judgment expected in the following months (FCA). The scheme is currently partially suspended, yet the regulator is explicit that firms must keep preparing and progressing complaints as far as possible, while also planning for the scenario in which the scheme collapses entirely (FCA).

Key Executive Takeaways

• The Upper Tribunal will hear challenges to the FCA's motor finance redress scheme from 16 to 26 February 2027, with a ruling expected months later, extending uncertainty for lenders into the second half of 2027.
• The FCA has told lenders to make financial provisions and engage auditors now for the possibility that the scheme is quashed and complaints revert to standard timescales, meaning board-level capital and operational planning cannot wait for the judgment.
• Three lenders, Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance, together with Consumer Voice represented by Courmacs Legal, are driving the challenge, splitting the industry between those contesting the mechanism and those who have accepted it.

A dual-track planning problem

The FCA's instruction creates an awkward posture for boards. Lenders must comply with the scheme rules that remain in force, including sending letters to some consumers not owed compensation, while simultaneously modelling a counterfactual in which there is no scheme and no complaint-handling pause at all (FCA). That is not a hedge, it is two parallel operating models. Firms that have scaled back complaint-handling capacity on the assumption the scheme would hold now face a credible scenario in which they must resolve complaints through the usual process within statutory timescales, with the operational cost that implies.

The auditor dimension is the sharper point. The regulator's explicit expectation that firms engage with their auditors on financial provisions (FCA) effectively hard-codes the uncertainty into year-end reporting cycles for December reporters and into interims thereafter. CFOs will be asked to justify provision ranges that straddle two very different legal outcomes, with the hearing itself falling after most 2026 sign-offs but before 2027 interims. Expect provisioning disclosure to become a focal point for analysts and audit committees through the first half of 2027.

The split in the lender base matters

The identity of the challengers is not incidental. Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance are captive and specialist auto financiers rather than universal banks (FCA). The large UK banks with significant motor finance exposure have not joined the challenge publicly. That divergence will shape how boards position with government, consumer groups and the FCA itself. Firms seen as acquiescing may bank reputational credit, those challenging may secure a better mechanism but absorb the political cost of appearing to resist redress.

Consumer Voice's involvement, represented by Courmacs Legal, is the other feature worth noting (FCA). A challenge from the consumer side as well as the lender side signals that whatever the Tribunal produces, neither flank is content with the current design. That reduces the probability of a clean affirmation and raises the probability of a reshaped scheme, which is precisely the hardest outcome to provision for.

Positioning before February

The appointment of Liam Coleman as permanent chair of the Financial Ombudsman Service for a three-year term from 10 October 2026 (FCA) sits alongside this. If the scheme falls, the Ombudsman becomes the primary route for unresolved complaints, and its leadership continuity matters more than it did a week ago. Senior leaders should be using the next four months to pressure-test complaint-handling capacity, agree provisioning ranges with auditors, and decide, deliberately, which side of the industry split they want to be seen on.