The Financial Conduct Authority (FCA) has warned that legal challenges to its compensation scheme for victims of the motor finance scandal could delay payouts for up to three years and add £6 billion in costs for lenders. The regulator told MPs that the ongoing disputes could stretch its resources and have significant consequences.
The FCA faces legal challenges from four parties: Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance, and the campaign group Consumer Voice, which is working with law firm Courmacs Legal. These challenges have dashed hopes of resolving the scandal, which involved overcharging drivers on loans due to commission payments between lenders and car dealers from 2007 to 2024.
The regulator is now being taken to the upper tribunal, where a judge will review the £9.1 billion compensation programme. Even if the scheme is upheld, payouts would be delayed until 2027, according to FCA deputy chief executive Sarah Pritchard. If rejected, the FCA may need to consult on a new scheme or abandon it in favour of a complaints-led approach through the Financial Ombudsman Service.
FCA chief executive Nikhil Rathi stated that a complaints-led approach would cost lenders over £6 billion more and take three years to resolve. This would affect not only the challengers but also other banks involved, including Lloyds Banking Group, Santander UK, and Barclays. Labour MP John Grady questioned the FCA's timeline, noting that further appeals could extend the process.
The FCA also faces nearly £3 million in additional costs from the legal proceedings, which could force it to reallocate resources. Pritchard acknowledged the trade-offs, emphasising that consumers have waited long enough for compensation and must be paid.
