Following legal challenges to its motor finance compensation scheme, the FCA has said that the scheme is partially suspended while the Upper Tribunal hears the challenges.
The industry-wide redress scheme aims to compensate motor finance customers who were treated unfairly between 2007 and 2024.
However, the FCA has received four legal challenges: one from consumer rights organisation Consumer Voice and three from lenders - Volkswagen Financial Services, Mercedes Benz Financial Services, and Crédit Agricole Auto Finance.
Consumer Voice claims the scheme undercompensates drivers and prioritises banks' interests over consumer protection, warning that the scheme could leave millions of consumers out of pocket by several hundred pounds per claim.
The challenge is due to be heard either in December or in February next year, with a judgment expected in the following months. Until the legal process concludes, lenders do not need to calculate or pay compensation to people owed money under the scheme.
In the meantime, the Tribunal has made an order suspending parts of the scheme, which the FCA says enables firms to keep preparing for the scheme and progress complaints as far as possible, while avoiding work that may need to be repeated if the challenges succeed.
Firms will still be required to identify relevant complaints and agreements, gather the data needed to identify commission arrangements and disclosure practices, including where information is held by brokers, and respond to complainants who are not owed compensation.
However, the FCA has acknowledged "the possibility that there [will be] no scheme". If the scheme is overturned, "we may instead tell lenders to resolve complaints individually under the usual complaints process", the regulator said.
In its latest update, the FCA said: "Firms should update complainants to explain when the legal challenge will be heard, what the partial suspension means, and the likely impact on the timetable for dealing with complaints and paying any compensation owed.
"In particular, we expect the three lenders who have challenged the scheme, at a minimum, to contact all of their complainants individually and directly to explain they have issued a legal challenge and the resulting partial suspension to the scheme and delay to compensation payments.
"We will supervise firms proportionately and pragmatically, while ensuring they prepare to deliver the scheme and for the possibility that there is no scheme."
