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 up to three years and add £6bn in extra costs for lenders. The watchdog told MPs on the Treasury committee that the process, which was expected to begin this summer, may now be pushed back to 2027 if the scheme survives judicial review.
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 argues that drivers are being undercompensated. These challenges have forced the regulator to take the case to the upper tribunal, where a judge will review the merits of the £9.1bn compensation programme.
FCA deputy chief executive Sarah Pritchard told MPs that if the scheme is upheld, payouts would be delayed until 2027. If it is rejected, the FCA may launch a new consultation or abandon the scheme entirely, leaving complaints to be handled by the Financial Ombudsman Service. The latter option, according to FCA chief executive Nikhil Rathi, would cost lenders over £6bn more and take three years to resolve.
The legal challenges also impose a financial burden on the FCA itself, which expects to spend an extra £2.7m on the case. Pritchard warned that this could lead to internal resource trade-offs, as the regulator must pivot staff to handle the litigation. Labour MP John Grady questioned the FCA's timeline, suggesting that appeals could extend the process further.
