The Financial Conduct Authority announced that millions of motorists waiting for compensation over mis-sold car finance will face another significant delay. Payouts under the £9.1 billion redress scheme are now unlikely to begin before 2027, according to correspondence with the Treasury select committee.
The scheme covers an estimated 12.1 million eligible car finance agreements with an average payout of £829. It was originally scheduled to start paying out this year.
Legal Challenges Halt Progress
The compensation program has been put on hold while courts consider legal challenges brought by finance arms of leading carmakers and a consumer group. Nikhil Rathi, chief executive of the FCA, told committee chair Dame Meg Hillier that it’s unprecedented for an agreement to recompense complainants to be paused for two years.
“Any payouts are now increasingly unlikely before 2027,” Rathi wrote.
The compensation relates to discretionary commission arrangements – widely known as “hidden” commission. Under these arrangements, dealers could set the interest rate on a customer’s loan, pocketing bigger commission the higher the rate climbed.
The FCA concluded this practice meant motorists didn’t get a fair deal when financing their cars. The regulator banned it in 2021.
Who’s Fighting the Scheme
Four parties are asking courts to quash the scheme, arguing its rules are unlawful:
- Financial services arms of Volkswagen and Mercedes-Benz
- Car finance division of French bank Crédit Agricole
- Consumer Voice, a group representing consumers
No UK bank has chosen to challenge it.
Rathi expressed disappointment with the commercial parties’ decision to proceed with challenges. He noted that lenders representing most of the market and their trade bodies chose not to challenge the scheme.
“The final scheme is fair to consumers and proportionate for firms and, while not all agree with every element, lenders representing most of the market and their trade bodies chose not to challenge.”
Several have said publicly that despite reservations, the scheme offers the quickest and most effective route to certainty for both customers and investors.
Rising Costs and Continued Delays
The dispute represents the latest twist in a saga that’s already taken in the Court of Appeal and a Supreme Court ruling. That ruling blocked billions in car finance payouts last year after the government was barred from intervening in the landmark commission battle.
The bill for the regulator continues mounting. Developing the scheme has cost the FCA £20.5 million over more than two years. The watchdog estimates the legal challenges will add another £2.7 million.
Around 80 staff are currently working on motor finance issues.
Sarah Pritchard, the FCA’s deputy chief executive, told MPs the watchdog was exploring ways to pay some consumers early. She emphasized that consumers have been waiting a very long time to be compensated.
“One way or the other, they need to be compensated,” Pritchard said.
What This Means for Future Car Buyers
The scandal serves as a reminder for anyone financing their next car – electric or otherwise – to scrutinize the small print before signing. With most new EVs bought on finance, understanding how deposits shape an affordable PCP deal has rarely mattered more.
Drivers who believe they were affected can complain directly to their lender free of charge, according to the FCA. The regulator advises against using claims management companies, which may take more than 30% of any compensation.
The FCA is funded by fees charged to the firms it regulates, meaning the industry itself is ultimately bearing the cost of this lengthy legal process.
