Key facts
- The FCA has suspended parts of its £9.1bn motor finance redress scheme.
- Lenders are temporarily exempt from calculating and paying compensation.
- Legal challenges have been filed by Volkswagen Financial Services, Mercedes Benz Financial Services, Crédit Agricole Auto Finance, and Consumer Voice.
- Hearings for the Upper Tribunal process are expected as late as February 2027.
- The scheme addresses 'secret' commission deals between lenders and dealers.
The UK's Financial Conduct Authority (FCA) has been forced to partly suspend its £9.1bn car finance compensation scheme due to legal challenges and industry backlash. A UK court has ordered the suspension of parts of the scheme, delaying payouts for millions of motorists affected by overcharged loans due to commission payments between lenders and car dealers between 2007 and 2024. The FCA stated that if the court overturns the scheme, it may instead direct lenders to resolve complaints individually, a process that could cost lenders an additional £6bn and take three years. The scheme was introduced in March to compensate motorists treated unfairly, with initial estimates suggesting payouts could total £7.5bn for about 12.1 million car loans, plus £1.6bn in costs. The practice of allowing discretionary commissions that inflated loan costs was banned in 2021. Challenges to the scheme primarily concern the FCA's application of law related to limitation periods and alleged unlawful interference with lenders' property rights. Major lenders like Lloyds Banking Group and Santander have set aside billions for payouts but are not challenging the scheme.