Following legal challenges to its motor finance compensation scheme, the FCA today said it is unclear when the case will be heard, but it is "unlikely to be before October", potentially delaying payouts due to begin this year.
As a result, the regulator says it is engaging with the Tribunal and those who have challenged the scheme on the possibility of "suspending some elements of it while retaining those relating to preparatory work".
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.
Despite the legal challenges, the FCA said firms should continue to prepare for the scheme "until we communicate otherwise" and should still submit implementation plans by 12th May.
Yet, the regulator warned that "complaints cannot be paused indefinitely" and warned the industry to prepare for "the alternative scenario of no scheme".
In a statement today, the FCA said: "We have not yet made any decisions on what we would do under various scenarios. However, if the scheme, or parts of it, were quashed, we would need to carefully consider all options, taking account of all relevant matters. That would include whether to proceed with a revised scheme. This would likely require further consultation, and any resulting rules or guidance could face further lengthy challenge.
"It is therefore now prudent for us to supervise all lenders against a central planning assumption that under that scenario there would be no scheme. Lenders need, therefore, to be operationally and financially ready for a complaint-led and supervisory approach to resolve historic liabilities."
The FCA says scrapping the scheme would have an impact on consumers, who may not always complain, and would "also impose significant extra costs on lenders".
