Upper Tribunal suspends parts of motor finance compensation scheme

The Upper Tribunal has suspended parts of the Financial Conduct Authority's motor finance redress scheme, the FCA said on 2 July 2026¹. Until the legal process concludes, lenders do not need to calculate or pay compensation to people owed money under the scheme, but must comply with all rules that are not suspended¹. The FCA said the scheme had been legally challenged on 1 May 2026 and that it would defend it robustly as lawful¹.

The scheme was announced on 30 March 2026 and covers motor finance loans taken out between 6 April 2007 and 1 November 2024¹. The FCA says 12.1 million agreements made between 2007 and 2024 are eligible, fewer than under its original proposals, with an average payout of around £830 per agreement¹. It estimates 75% of eligible consumers will claim, which would mean total redress of £7.5bn¹. The Consumer Council gives the same £830 average figure³.

Compensation applies where consumers were not told clearly that their dealer or broker set the interest rate to earn more commission through a discretionary commission arrangement, that commission was high (at least 39% of the total cost of credit and 10% of the loan), or that a tied arrangement applied¹. Exceptions include commission of £120 or less for agreements beginning before 1 April 2014 and £150 or less from that date, borrowers not charged interest, and cases where the lender can prove it was fair not to disclose¹. High value loans, above 99.5% of other loans that year, are not covered¹. Personal contract hire and unsecured personal loans are also outside the scheme³.

The FCA said the eligibility criteria had been tightened, average compensation increased for older agreements and a minimum 3% compensatory interest rate per annum added¹. Interest is based on the annual average Bank of England base rate plus 1%, at a minimum of 3% in any year¹. For most people compensation is the average of the commission paid and the estimated loss, based on a percentage discount of the interest paid: 17% for cases from April 2014 and 21% for earlier agreements¹. In around 1 in 3 cases compensation will be capped¹.

Why it matters for households

People with a motor finance agreement in the covered period who believe they were not told about commission arrangements are affected, but payments are now on hold. Lenders can still identify eligible complaints and tell consumers they are not eligible, according to the Solicitors Regulation Authority⁵. Zopa, a lender, said it cannot yet work out or pay compensation, but complaints can still be made and reviewed⁴. United Trust Bank said compensation decisions, communications and payments are delayed⁶. Hampshire Trust Bank said customers who have already complained do not need to take any action².

The Consumer Council notes this type of borrowing is not covered by the Financial Services Compensation Scheme, so if a lender goes out of business consumers may not get any compensation³. It also says consumers must respond within six months if they wish to join the scheme³. The FCA has warned about scams linked to motor finance compensation¹.

What happens next

The Upper Tribunal is expected to hear legal challenges in December 2026 or February 2027, with a judgment expected in the months following³. Zopa said that if the scheme goes ahead, the FCA expects payments to start in 2027⁴. The deadline to complain under the scheme is 31 August 2027¹.