FCA ordered to partly suspend car finance compensation scheme

The Financial Conduct Authority has been ordered to partly suspend its £9.1bn car finance compensation scheme, delaying payouts for millions of motorists after a court agreed to hear challenges from three lenders and a consumer group [1]. The regulator had expected the scheme to begin paying an average of £830 this year to those affected by the motor finance scandal, which involved drivers being overcharged on loans between 2007 and 2024 due to commission arrangements between lenders and car dealers [1]. The court order means Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance, and Consumer Voice will have their challenges heard at a hearing in December or February next year, with a judgment expected in the months following [1]. Until the legal process concludes, some of Britain’s largest lenders will not be required to calculate or pay compensation to people owed money under the scheme [1]. The FCA estimated the scheme would cover approximately 12.1m car loans, with total payouts reaching £7.5bn and a further £1.6bn in costs [1]. The watchdog’s deputy chief executive, Sarah Pritchard, told the Treasury committee in June that the regulator could take a near-£3m hit from being dragged through the courts, forcing it to “pivot resources” internally [1]. FCA chief executive Nikhil Rathi had previously warned MPs that if the scheme were overturned, it could cost lenders an additional £6bn and take three years to resolve claims through a complaints-led approach [1]. The practice at the centre of the scandal involved discretionary commissions, banned in 2021, which allowed car dealers to claim higher commissions by placing customers on loans with higher interest rates for the lender [1]. The FCA said that if the scheme is overturned, it may instead instruct lenders to resolve complaints individually under the usual complaints process, requiring responses within eight weeks, with consumers able to escalate unresolved cases to the Financial Ombudsman Service [1]. The regulator had expected most remaining payouts to be completed by 2027, but said a revised scheme could face further legal challenge, potentially delaying compensation “until 2028 or beyond” [1]. The suspension introduces a period of uncertainty for consumers and lenders alike, echoing the prolonged resolution timelines seen in other large-scale UK redress programmes. The FCA stated it wants to “secure fair compensation for consumers as quickly as possible” [1], but the court’s intervention means the path to resolution now depends on the outcome of the upcoming hearings.