Warning sign #1: The motor finance pause is over – The claims window is now open
On 31 May 2026, the FCA lifted the pause on handling certain motor finance complaints, enabling implementation of its proposed compensation scheme and ensuring timely consumer outcomes. The pause, introduced in January 2024 to prevent inconsistent handling while assessing commission disclosure practices, ends following legal clarity from the Supreme Court and the High Court.
On 8 May 2026, the FCA issued an update confirming that legal challenges to the scheme are ongoing but that implementation timelines remain in place – with tribunal proceedings not expected before October 2026. The FCA stated that firms should continue preparatory work, including identifying relevant complaints, gathering information on commission arrangements, and cooperating with the Financial Ombudsman Service. Separately, on 28 May 2026, the FCA made the Consumer Credit (Regulatory Reporting) (Amendment) Instrument 2026, introducing amendments to reporting requirements for consumer credit firms that came into force on 29 May 2026 – requiring more detailed reporting of credit broking activities.
The lifting of the complaint-handling pause is the starting gun. The combination of an active compensation scheme, ongoing legal challenges that have not suspended implementation, rising FOS award limits (up to £455,000), and tightened reporting requirements creates a multi-front compliance and litigation risk for any firm with motor finance or consumer credit exposure. Firms that have not completed their preparatory work are already behind.
What to watch: Individual and group consumer claims under the FCA's redress framework, regulatory enforcement actions against firms whose practices do not meet published standards, and reputational consequences from the FCA's ongoing public commentary on the scheme.
Warning sign #2: Employment Rights Act unfair dismissal – The commencement clock is running
On 26 May 2026, the UK Official Gazette published Statutory Instrument SI 2026/559 – the Employment Rights Act 2025 (Commencement No. 4 and Transitional and Saving Provisions) Regulations 2026 – bringing into force the unfair dismissal provisions of the Employment Rights Act 2025. Certain provisions, including powers for consequential amendments, take effect from 1 July 2026, with remaining provisions following in a phased commencement. On 15 May 2026, the DBT updated the Employment Rights Act 2025 factsheet, confirming the unfair dismissal compensation cap has been set at £123,543. On 12 May 2026, HMRC updated its guidance on National Minimum Wage underpayment notices, confirming that arrears are calculated at current wage rates and that employers are subject to penalties equal to 200% of the underpaid amount.
The combination of newly commencing unfair dismissal provisions, a raised compensation cap, and actively enforced NMW penalties creates a concentrated period of employment litigation risk. Businesses that have not updated their dismissal procedures, performance management frameworks, and wage compliance processes to reflect the Employment Rights Act 2025 are creating direct exposure to claims – with the financial stakes materially higher than before the cap increase.
What to watch: Unfair dismissal claims brought under the newly commenced provisions, NMW enforcement actions by HMRC with 200% penalty exposure, and constructive dismissal claims arising from workplace changes made without adequate consultation under the new statutory framework.
Warning sign #3: Consumer credit financial promotions are under active regulatory scrutiny
On 29 April 2026, the FCA published Consultation Paper CP26/15, proposing changes to simplify the financial promotions rules in CONC 3 and reviewing how cost-of-credit information is presented to consumers – including the effectiveness of the Representative APR, the use of representative examples, and the appropriateness of the 51% threshold. On 27 May 2026, the FCA published findings from a review of firms that approve financial promotions for unauthorised businesses, identifying weaknesses including approval of promotions with unsubstantiated claims, inappropriate targeting of retail consumers, and over-reliance on third-party templates without sufficient due diligence. The FCA explicitly called on firms to raise standards. On 19 May 2026, the FCA also launched a market study into claims management services, with Terms of Reference published and stakeholder input invited by 19 June 2026.
When the FCA publishes multi-firm review findings identifying systemic weaknesses in financial promotion approvals and simultaneously launches a market study into the claims management industry, enforcement and litigation typically follow in close sequence. The firms that continue to approve financial promotions without adequate due diligence – and the firms whose promotions have already reached consumers on the basis of inadequate disclosures – face compounding exposure: regulatory action from the FCA, and private claims from consumers who relied on misleading or incomplete information.
What to watch: FCA enforcement actions against section 21 financial promotion approvers with inadequate due diligence processes, consumer claims arising from promotions with unsubstantiated or misleading APR disclosures, and increased scrutiny from the claims management market study on how firms handle consumer disputes in the credit space.
