The Financial Conduct Authority (FCA) has been forced to pause payouts on its £9.1 billion car finance redress scheme, meaning millions of motorists are facing further delays to compensation. Payouts were meant to start this year but are now facing significant delays after four companies launched legal challenges against the regulator's plans.
Legal Challenges from Major Firms
The financial services arms of carmakers Volkswagen and Mercedes-Benz, 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. The UK's Upper Tribunal has agreed to hear the legal challenges in December or February next year, with a judgment expected in the following months.
According to the FCA, the tribunal ordered that parts of its motor finance scheme were suspended on terms agreed with the four parties involved. The pause means that lenders will no longer need to calculate or pay compensation to people owed money, nor tell customers about compensation they are owed, until the legal process concludes.
Impact on Millions of Motorists
This puts the brakes on the process of paying out an estimated 12.1 million car finance agreements that are eligible for redress, at an average of £829 per payout, under the FCA's plans. The scheme was designed to compensate people who were mis-sold car loans, but the legal challenges have halted the process indefinitely.
The FCA has not yet commented on how the delay might affect the timeline for payouts if the legal challenges are resolved in its favour. Motorists who were expecting compensation this year will now have to wait until at least 2027 for a resolution.
