The Financial Conduct Authority (FCA) has issued an update to millions of UK motorists awaiting compensation for mis-sold car loans, confirming that planned payouts are now pushed back until at least 2027.
Timeline Disruption Confirmed
In an update released on Tuesday, the regulatory body revealed that a wave of legal challenges threatens to derail its proposed £9.1 billion industry-wide compensation scheme. The FCA has already spent more than £20 million developing the plans, with further costs anticipated.
Legal Challenges Mount
The financial services divisions of Volkswagen and Mercedes-Benz, alongside French bank Credit Agricole's car finance arm and advocacy group Consumer Voice, are petitioning the courts to quash the initiative, claiming the framework is unlawful. Notably, no major UK banks have joined the legal action.
Appearing before the Treasury Select Committee, FCA Deputy Chief Executive Sarah Pritchard addressed the setbacks directly: "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."
Hidden Commissions at the Core
The dispute centres on historical discretionary commission arrangements, frequently referred to as hidden commissions, which the FCA asserts prevented consumers from securing fair financing rates. The average expected payout is estimated at £829 per eligible agreement, with roughly 12.1 million affected agreements.
Potential Alternative Route
In a briefing letter to MPs, FCA Chief Executive Nikhil Rathi warned that the current scheme could be "struck down in whole or part" by the courts. Should the framework fail, the regulator would be forced to pivot to a complaints-led approach to resolve individual claims.
According to FCA projections, abandoning the centralised scheme would trigger an estimated 19 million individual complaints. This alternative route is projected to take an additional three years to resolve and cost lenders an extra £6 billion, driving total industry liabilities to over £15 billion.
Mounting Administrative Burden
The administrative burden of the probe is also mounting. The FCA, which is funded by levies on the firms it regulates, has already spent £20.5 million over a two-year period developing the scheme. It estimates the legal challenge will add about £2.7 million in costs, and it currently has around 80 staff involved in motor finance-related work.
Search for Workarounds
Amid growing frustration over the timeline, the FCA indicated it is searching for regulatory workarounds to expedite relief for vulnerable consumers. "Consumers have been waiting a very long time to be compensated and, one way or the other, they need to be compensated," Ms Pritchard told the committee. "If consumers wish to receive compensation now, we are exploring what the options for that might be," she added.
