The Financial Conduct Authority (FCA) has warned that planned payouts for consumers mis-sold car loans are likely to be delayed until at least 2027, as the UK watchdog faces multiple legal challenges that threaten to derail its compensation scheme. The FCA stated it has already spent over £20 million developing the plans, with further costs anticipated.
Legal challenges mount
The regulator is currently facing four separate legal challenges from companies dissatisfied with its redress proposals. These proposals involve paying an average of £829 to an estimated 12.1 million eligible car finance agreements. The agreements in question involved so-called discretionary commission arrangements, commonly referred to as 'hidden' commission, which the FCA says meant motorists did not receive a fair deal when taking out car loans.
Payments under the scheme were originally expected to begin this year, but are now facing significant delays. Sarah Pritchard, deputy chief executive of the FCA, told MPs on the Treasury Select Committee: 'I want to be straightforward that the legal challenge will add delay and extra costs to the scheme as a whole. If the scheme goes ahead, the delay, we believe, will result in payments not before 2027.'
Industry opposition
The financial services arms of carmakers Volkswagen and Mercedes-Benz, along with the car finance arm of French bank Credit Agricole and Consumer Voice, a group representing consumers, are asking the courts to quash the scheme, arguing the rules are unlawful. No UK bank has decided to challenge the scheme, which is expected to cost the industry £9.1 billion.
In a letter to the committee, FCA chief executive Nikhil Rathi warned that the scheme could be 'struck down in whole or part' as a result of the legal challenges. If that happens, the FCA would need to decide on next steps to ensure consumers still receive compensation. One alternative could be a complaints-led approach to resolving individual claims, which Rathi estimates would cost lenders an additional £6 billion and take three years to complete.
