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LONDON, July 2 (Reuters) - Britain's financial watchdog said on Thursday that parts of its proposed £9.1 billion ($12.1 billion) motor finance compensation scheme would be suspended while legal challenges are heard, with proceedings expected in December or February.

The Financial Conduct Authority's plan to compensate consumers over a 17-year motor finance mis-selling scandal was thrown into doubt in April after challenges from Credit Agricole CAGR.PA, consumer group Consumer Voice and the financial services arms of carmakers Volkswagen VOWG.DE and Mercedes-Benz MBGn.DE.

The regulator has accused the industry of failing to adequately disclose commissions and commercial arrangements between lenders and car dealerships that it said incentivised brokers to hike interest rates on loans between 2007 and 2024.

Most of the motor finance industry, including banks such as Lloyds LLOY.L, Barclays BARC.L, Santander SAN.MC and Close Brothers CBRO.L, did not challenge the redress plan, though some questioned whether its scope could allow some motorists who had not suffered losses to obtain payouts.

Others argued the plan could deter investment in Britain's auto industry or fail to provide adequate compensation for consumers.

The FCA said the partial suspension means lenders do not have to calculate or pay compensation, or contact eligible consumers about redress, until the legal challenges are resolved.

However, firms must continue responding to complainants who are not entitled to compensation under the scheme.

London's Upper Tribunal, a court that hears regulatory challenges, ordered the partial suspension on terms agreed by the FCA and challengers.

The FCA reiterated that, if the scheme is upheld and any ruling is not appealed, compensation payments could begin in 2027. If the plan is struck down and the FCA opts to consult on a revised scheme, redress could be delayed until 2028 or later.

"We want to secure fair compensation for consumers as quickly as possible," the FCA said. "So, if the scheme is overturned, we may instead tell lenders to resolve complaints individually under the usual complaints process."

"This (legal challenge) will likely be a ferocious fight for every compensation percentage point and form of assessment criteria," said Daniel Gore, a partner at law firm Withers.

"Lenders and consumer will wait with bated breath for the determination of the scope of the compensation scheme or whether it will even survive."

($1 = 0.7505 pounds)