Millions of drivers who were mis-sold car finance agreements must wait at least until 2027 to receive compensation, after a court ordered the Financial Conduct Authority to partly suspend its £9.1bn redress scheme.
The FCA had expected the scheme – covering about 12 million car loans taken out between April 2007 and November 2024 – would start paying out an average of £830 this year. But legal challenges by three lenders and a consumer group have forced a delay. Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance and Consumer Voice have all lodged objections. A hearing is scheduled for December or February next year, with a judgment expected months later.
“Court orders FCA to partly suspend £9.1bn car finance compensation scheme, delaying payouts for millions until at least 2027.”
“We want to secure fair compensation for consumers as quickly as possible,” the FCA said in a statement. “So, if the scheme is overturned, we may instead tell lenders to resolve complaints individually under the usual complaints process. Lenders would need to respond within eight weeks, and you could take your complaint to the Financial Ombudsman Service if you think you haven’t been treated fairly.”
The scandal stems from discretionary commission arrangements (DCAs), which the FCA banned in 2021. These deals allowed car dealers to receive commission from lenders based on the interest rate charged to the customer – an incentive to push borrowers into higher rates. Customers were often not told about the arrangement. Some contracts were judged unfair because the commission paid to the dealer accounted for at least 35% of the total cost of credit and 10% of the loan. Exclusive arrangements between dealers and lenders also meant customers were not given accurate information about the best finance deal.
The total cost of compensation, including administrative costs, could reach £9.1bn. The FCA’s central compensation scheme was designed to allow people to complain without needing a lawyer. However, the regulator has already received complaints on four million finance agreements. Those people do not need to do anything. Others yet to complain are urged to contact their car loan provider directly, rather than using a third-party claims management company.
If the court overturns the scheme, the FCA’s chief executive, Nikhil Rathi, told MPs on the Treasury committee last month that it could cost lenders an additional £6bn and take three years to resolve claims through a complaints-led approach. The FCA itself faces a near-£3m hit from being dragged through the courts, its deputy chief executive, Sarah Pritchard, said.
Motorists have also been warned to be on the alert for scammers posing as car finance lenders offering fake compensation. The regulator has published guidance on how to complain. For some customers – especially those whose contact details have changed – it could take many months before compensation is paid. The legal challenge now leaves the entire timeline uncertain, with the fate of millions of borrowers hanging on a court decision due next year.