Millions of motorists awaiting compensation from the UK’s £9.1 billion car finance redress scheme face further delays after the financial watchdog was forced to pause payouts.
The Financial Conduct Authority (FCA) has suspended the process, facing legal challenges from four companies unhappy with its plans to compensate those mis-sold car loans.
Payouts, initially slated to begin this year, are now facing significant delays.
The UK’s Upper Tribunal has agreed to hear the legal challenges in December or February next year, with a judgment expected in the following months.
The financial services arms of carmakers Volkswagen and Mercedes-Benz, the car finance arm of French bank Credit Agricole, and consumer group Consumer Voice, are asking the courts to quash the scheme, arguing its rules are unlawful.
The FCA confirmed the tribunal had ordered parts of its motor finance scheme suspended on terms agreed with the four parties involved.
The pause means that lenders will no longer need to calculate or pay compensation to people owed money, nor tell customers about compensation they are owed, until the legal process concludes.
This puts the brakes on the process of paying out an estimated 12.1 million car finance agreements that are eligible for redress, at an average of £829 per payout, under the FCA’s plans.
They will, however, have to keep preparing for the scheme and progressing customer complaints as far as possible – including telling people if they are not owed any compensation.
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Firms are also expected contact customers who have complained to explain the legal challenges and why it is causing delays.
If judges decide to uphold its scheme, and the judgment is not appealed, then it expects payments to begin in 2027.
The FCA said it will need to decide what to do next if the courts decide to overturn the programme and there can be no industry-wide compensation scheme.
This could involve switching to a complaints-led approach to resolving individual claims.
Without a scheme in place, the FCA has estimated that up to 19 million complaints would need to be handled individually, taking three years and costing lenders £6 billion more.
