Millions of motorists who were overcharged on car loans must now wait until at least 2027 for compensation, after a court ordered the Financial Conduct Authority to partly suspend its £9.1bn redress scheme.
The Financial Conduct Authority had expected to start paying out an average of £829 per mis-sold agreement this year, but legal challenges from three lenders and a consumer group have forced a halt. Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance and Consumer Voice will have their objections heard in 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.”
The delay affects about 12 million car loans taken out between April 2007 and November 2024 – just over 40% of all finance agreements in that period. The scandal centres on discretionary commission arrangements, which the FCA banned in 2021. Under those deals, car dealers received commission from lenders based on the interest rate charged to the customer, creating an incentive to push up costs. Some drivers were also sold contracts where the dealer's commission accounted for at least 35% of the total cost of credit.
The regulator initially introduced the scheme in March, estimating total payouts would reach £7.5bn, with a further £1.6bn in administrative costs. But the court order means that Britain’s biggest lenders, which have already set aside billions to cover claims, will not be required to calculate or pay compensation until the legal process concludes.
Nikhil Rathi, the FCA’s chief executive, told MPs on the Treasury committee last month that if the scheme were overturned, an alternative complaints-led approach could cost lenders an additional £6bn and take three years to resolve. The FCA’s deputy chief executive, Sarah Pritchard, said the watchdog would take a near-£3m hit from being dragged through the courts.
The FCA said it would need to decide what to do next if the scheme is overturned. “We want to secure fair compensation for consumers as quickly as possible,” it 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.”
For those who have already complained – about four million finance agreements – no further action is needed. The regulator urged others to contact their loan provider directly, warning against third-party claims management companies and alerting motorists to scammers posing as lenders offering fake compensation. The FCA has published guidance on how to complain, but the timing of lenders’ responses remains uncertain while the legal challenge continues.