Millions of drivers waiting for compensation over mis-sold car finance face further delays after a court ordered the Financial Conduct Authority to partly suspend its £9.1bn payout scheme, pushing payments at least into 2027.
The FCA had expected the scheme to start paying £830 on average this year to those affected by the motor finance scandal – in which drivers were overcharged for loans between April 2007 and November 2024 because of commission payments between lenders and car dealers. But legal challenges by Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance and the consumer group Consumer Voice have forced a halt.
“Court forces FCA to partly suspend £9.1bn car finance compensation scheme, delaying payouts for millions of drivers.”
The court ordered the regulator to suspend parts of the scheme until a hearing in December or February next year, when it will decide on the challenges. A judgment is expected in the months after the hearing, the FCA said. It means some of Britain's biggest lenders, which have already set aside billions to pay claims, will not need to calculate or pay compensation until the legal process concludes.
The FCA had initially introduced the scheme in March, estimating that payouts would total £7.5bn covering about 12.1m car loans, with a further £1.6bn in costs. The regulator's boss, Nikhil Rathi, told MPs on the Treasury committee last month that if the scheme were to be overturned it could cost lenders an additional £6bn and take three years to resolve claims through a complaints-led approach.
The FCA said in a statement: “We want to secure fair compensation for consumers as quickly as possible. 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 watchdog also told the Treasury committee in June it would take a near-£3m hit from being dragged through the courts. The FCA’s deputy chief executive, Sarah Pritchard, said this could result in additional costs.
The scandal centres on discretionary commission arrangements, which the FCA banned in 2021. These deals gave car dealers incentives to charge customers higher interest rates, leaving borrowers paying too much. Some customers were also not given accurate information about the best deal because of exclusive arrangements between dealers and lenders. Complaints have already been made on about four million finance agreements; those people do not need to do anything. The regulator urged anyone who has not yet complained to contact their lender directly, warning against using third-party claims management companies.
Motorists have also been warned to be on the alert for scammers posing as car finance lenders offering fake compensation. The FCA has published guidance on how to complain.