Key facts
- The FCA has suspended parts of its £9bn motor finance redress scheme.
- Firms 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 suspended parts of its £9bn motor finance redress scheme amid significant backlash from industry and consumer groups. The suspension, announced on Thursday, will allow firms to continue scheme preparations but halt work that might be redundant if legal challenges succeed. This decision follows an order from the Upper Tribunal ahead of the FCA's legal battles with Volkswagen Financial Services, Mercedes Benz Financial Services, and Crédit Agricole Auto Finance, as well as a challenge brought by Consumer Voice.
Under the suspension, lenders are not required to determine exact compensation amounts or make payouts while legal challenges are ongoing. They are also exempt from deadlines for calculating, communicating, and paying redress until the Upper Tribunal process concludes, with hearings anticipated as late as February 2027. The motor finance scandal centers on 'secret' commission deals between lenders and dealers.
This development comes after the Supreme Court ruled in favor of lenders on two out of three cases last August, but an industry-wide redress scheme was still initiated on grounds of 'unfairness' due to an outsized commission charged to one consumer. The FCA's finalized proposals in March put lenders on the hook for £9.1bn, a figure lower than initially expected due to a reduction in qualifying agreements. Earlier this month, the regulator expressed concerns in letters to over 100 motor finance firms regarding their operational readiness to handle complaints. Challenges to the scheme primarily concern the FCA's application of law related to limitation periods, affecting whether consumers have suffered compensable loss. One applicant also cited alleged unlawful interference with lenders' property rights under the Human Rights Act 1998. Major banking groups like Lloyds Banking Group and Santander, despite significant provisions set aside, have confirmed they will not challenge the scheme.