The Financial Conduct Authority (FCA) has suspended its car finance redress scheme, putting at risk compensation payouts worth £829 for millions of petrol, diesel, and electric car customers. The Upper Tribunal has confirmed it will hear legal challenges to the motor finance scheme after four commercial parties challenged the payouts.
Legal Challenges Threaten Compensation
According to the FCA, there is a possibility that the scheme could be overturned, which would be a blow to the 12.1 million car finance agreements eligible for the redress scheme. A tribunal will hear the case between either December 14 and 18 or January 16 and 26, with a judgement expected in the following months.
If the scheme is upheld, payouts are now likely to be issued in 2027. The FCA has explained that lenders do not need to calculate or pay compensation to people owed money until the legal process concludes.
What This Means for Motorists
Officials stressed that if the scheme is upheld and the judgment isn’t appealed, payments under the scheme should be paid to motorists in 2027. However, the FCA said they would “need to decide what to do next” if challengers get their way and the scheme is axed.
Motorists who purchased a car on a finance deal between April 2007 and November 2024 may be eligible for compensation if payouts go ahead.
FCA's Response and Future Plans
The FCA said: “The partial suspension enables firms to keep preparing for the scheme and progress complaints as far as possible, while avoiding work that may need to be repeated if the challenges succeed.” It also provides certainty for some consumers sooner, by requiring firms to tell complainants who are not owed compensation, subject to limited exceptions.
However, the FCA stressed that the redress scheme is the “quickest, fairest and most efficient way to compensate consumers” and admitted they were prepared to “defend it robustly”. They also stressed that motoring firms needed to ensure they are “operationally and financially ready” to resolve historical liabilities.
The FCA added: “A compensation scheme is the simplest route for consumers and the most efficient way for lenders to put things right. However, if we were to seek views on a revised scheme that could face further legal challenge, and compensation could be delayed until 2028 or beyond.”
“We want to secure fair compensation for consumers as quickly as possible. 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 8 weeks, and you could take your complaint to the Financial Ombudsman Service if you think you haven’t been treated fairly.”
