The financial watchdog has cautioned that millions of consumers face “fresh uncertainty” over compensation for being mis-sold car finance, as it confronts a legal battle surrounding its £9.1 billion redress scheme. Three lenders and a consumer group have mounted legal challenges against the Financial Conduct Authority’s (FCA) industry-wide compensation scheme following the publication of its final details in March.
The financial services divisions of carmakers Volkswagen and Mercedes-Benz, along with the car finance arm of French bank Credit Agricole, are contesting the plans, which are expected to cost the industry roughly £9.1 billion. Meanwhile, Consumer Voice, a group representing consumers, is also disputing the compensation package, arguing it will leave drivers who were harmed when taking out a loan significantly out of pocket.
The FCA confirmed it would robustly defend its scheme, which it maintains is “fair to consumers and proportionate for firms”, adding that none of the claims received is expressly in the name of individual consumers.
The regulator said in a statement: “We will defend the scheme robustly as lawful and the best way to resolve such a widespread, long-running and complex issue. These legal challenges create fresh uncertainty for millions of consumers and for the second-largest consumer credit market, with £39 billion borrowed in 2024.
“We are therefore engaging at pace with lenders and consumer groups to understand the breadth of views as we determine next steps for the scheme, including contingency planning.”
The legal challenges suggest potential delays to the protracted motor finance controversy. The FCA stated in March that it anticipated millions of claims would be settled this year, with the overwhelming majority resolved by the end of 2027.
Notwithstanding the uncertainty, the regulator continues to encourage consumers to lodge complaints directly with their lender if they believe they may be entitled to compensation, which they can do free of charge using a template letter available on its website.
“You do not need to use a law firm or claims management company, which may charge over 30% of any compensation,” it urged.
The FCA confirmed it would issue additional guidance to firms next week, while also commending the “commitment” from lenders who made the “difficult decision” to implement its scheme.
Industry body Finance and Leasing Association and major lenders including Lloyds, Barclays, Santander and Close Brothers have decided not to challenge the scheme.