On 20 May 2026, Dame Meg Hillier MP, Chair of the House of Commons Treasury Committee, wrote to the Financial Conduct Authority seeking clarification on several aspects of the proposed motor finance redress scheme. Her questions reflected concerns shared by Parliament, the industry, and millions of motorists whose complaints have remained on hold while the regulator develops one of the largest consumer compensation programmes in British history.
On 8 June 2026, the FCA responded.
The 17-page letter offers one of the most comprehensive explanations yet of the regulator’s position. It addresses the legal challenges facing the scheme, explains why the FCA remains committed to an industry-wide approach, and sets out what it expects lenders to be doing while the litigation continues.
The FCA states that around 12 million agreements are due compensation, with liabilities going back to 2007. That alone places the motor finance redress scheme among the most significant consumer restitution exercises ever undertaken in the UK financial services sector.
The regulator says its objective is to deliver fair compensation to affected consumers as quickly as possible while preserving a healthy and sustainable motor finance market.
The letter therefore presents the scheme as a matter of redress, but also as a matter of market stability.
Why the FCA still favours an industry-wide scheme
One of the clearest messages in the letter is that the FCA continues to view an industry-wide scheme as the most effective route to compensation. In the regulator’s view, a centralised redress mechanism offers a faster, fairer, and more consistent outcome than millions of individual complaints progressing separately through firms, the Financial Ombudsman Service, and the courts.
Despite the authority’s good intentions, the framework has already encountered resistance. Consumer Voice (represented by Courmacs Legal Ltd), Volkswagen Financial Services UK, Mercedes-Benz Financial Services UK, and Crédit Agricole Auto Finance are challenging the scheme in the courts.
The FCA’s response also places those challenges in context. It notes that lenders representing most of the market chose to avoid challenging the scheme, as did consumer organisations and Treasury-designated bodies with super-complaint powers.
That point appears designed to reinforce the legitimacy of the FCA’s approach. The regulator is effectively telling Parliament that, despite litigation from a “small” number of parties, the proposed scheme continues to command broad institutional support.
Legal challenges and the revised timetable
The immediate consequence of the litigation is delay. The FCA confirms that the Tribunal timetable “remains a matter for the Tribunal”, with the case expected to be heard from October 2026 at the earliest.
If the scheme survives the legal challenges, payments are expected to begin in 2027. If the proposal is struck down, the path becomes more complex. The FCA may need to consult again, consider a revised mechanism, rely on a complaints-led route, or face further litigation. In that scenario, compensation could move into the second half of 2027 or even early 2028.
This is one of the most important practical points in the letter. The FCA’s preferred route still points towards mass compensation, but the timing now depends heavily on the outcome of the legal proceedings.
What lenders are expected to do
The FCA is equally clear about its expectations for lenders. Legal uncertainty does not give firms permission to stand still. They are expected to continue preparing for redress.
That means identifying in-scope agreements, gathering commission and disclosure data, working with brokers, resolving duplicate representation issues, co-operating with the Financial Ombudsman Service and preparing financially for future liabilities.
The FCA also stresses that firms must hold sufficient UK capital and make appropriate financial provisions. Where firms lack adequate resources, the regulator has supervisory tools available, including business restrictions.
Firm resilience is a direct consumer protection issue. The FCA wants lenders to be ready to pay compensation when the time comes.
Why individual complaints could be less effective
The letter also explains why a complaints-led route could create substantial problems.
Individual complaints may appear attractive to some consumers, especially those seeking faster outcomes. However, the FCA estimates that this route could cost lenders over £6 billion extra and take three years to resolve claims.
A fragmented process could also produce inconsistent outcomes. Consumers with legal representation, time, and confidence may fare better than those who are vulnerable, less informed, or less likely to complain. That would undermine one of the central purposes of an industry-wide scheme: to compensate affected consumers systematically, including those who would struggle to navigate the process alone.
The impact on the Financial Ombudsman Service would also be considerable. The FCA states that the Ombudsman supports an industry-wide mechanism because it was designed to handle individual complaints, rather than mass redress at this scale. Without a scheme, up to 19 million complaints may need to be handled individually, with millions potentially referred to the Ombudsman. By comparison, the Ombudsman received 300,000 cases in total last year.
A wider question for Parliament
In addition to answering the committee’s questions, the letter also delivers a warning to Parliament: the motor finance scandal has exposed structural weaknesses in Britain’s consumer redress framework.
The current system allows large-scale redress exercises to become delayed by legal challenges, places pressure on regulators and ombudsman services, and leaves consumers exposed to aggressive claims-market activity. The FCA’s letter therefore goes beyond the mechanics of motor finance compensation, raising deeper questions about how the UK should handle future cases of mass consumer harm.
What the letter ultimately reveals
The FCA’s response reveals a regulator defending the proposed motor finance redress scheme while also acknowledging the complexity of the environment around it.
Its position is that an industry-wide scheme remains the best available route to fair and consistent compensation. It also recognises that legal challenges, lender preparedness, claims-market behaviour, and institutional capacity all affect how quickly consumers receive money.
For motorists, the letter offers reassurance that the FCA remains committed to compensation.
For lenders, it sends a clear message that preparation must continue.
For Parliament, it presents the motor finance scandal as a case study in the limits of the current redress system.
