The Financial Conduct Authority (FCA) has been ordered by a court to partially suspend its £9.1bn car finance compensation scheme, delaying payouts for millions of motorists. The scheme was designed to compensate drivers overcharged due to commission payments between lenders and car dealers between 2007 and 2024.
The suspension will remain in place until a hearing in December or February next year, when the court will consider challenges from Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance, and consumer group Consumer Voice. A judgment is expected months after the hearing.
The FCA stated that if the scheme is overturned, it may instruct lenders to resolve complaints individually under the usual process, with an eight-week response time and recourse to the Financial Ombudsman Service. FCA chief Nikhil Rathi warned MPs that this could cost lenders an additional £6bn and take three years to resolve.
The scheme, introduced in March, estimated payouts of £7.5bn covering 12.1m car loans, plus £1.6bn in costs. The FCA also faces a near-£3m hit from legal fees, which deputy chief executive Sarah Pritchard said could require internal resource pivots.
Mis-sold car finance has been called the worst consumer finance scandal since PPI, involving discretionary commissions that inflated loan costs. The practice was banned in 2021. The FCA had expected most compensation by 2027, but delays could push it to 2028 or beyond.
