The Financial Conduct Authority (FCA) has warned that legal challenges to its compensation scheme for victims of the motor finance scandal could delay payouts by three years and add £6bn to lenders' costs. The watchdog told MPs that the scheme, intended to compensate drivers overcharged on car loans between 2007 and 2024, is now being challenged by four parties including Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance, and consumer group Consumer Voice.
The FCA is being taken to the upper tribunal, where a judge will review the merits of the £9.1bn compensation programme. Even if the judge backs the scheme, payouts are not expected until 2027, the FCA's deputy chief executive Sarah Pritchard told the Treasury committee on Tuesday. If the scheme is rejected, the FCA may launch consultations on a new plan or abandon it entirely, leaving complaints to be handled by the Financial Ombudsman Service.
Under a complaints-led approach, the FCA estimates it would cost lenders over £6bn more and take three years to resolve claims, affecting not only the challengers but also banks like Lloyds, Santander and Barclays. Labour MP John Grady questioned the timeline, noting that appeals could extend to the Court of Appeal or Supreme Court.
The FCA itself faces a £2.7m hit from the legal challenge, which will force internal resource shifts. Pritchard said the regulator has already had to pivot resources, adding that consumers have waited too long and need compensation one way or another.
