Lead

The UK’s financial watchdog has been forced to partly suspend its £9.1bn car finance compensation scheme, delaying payouts for millions of motorists. The Financial Conduct Authority (FCA) had expected the scheme would this year start paying out £830 on average to those affected by the motor finance scandal, in which drivers were overcharged for loans as a result of commission payments between lenders and car dealers between 2007 and 2024.

However, a UK court has ordered the regulator to suspend parts of the compensation scheme until a hearing in either December or February next year, when it will decide on challenges by three lenders and a consumer group: Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance and Consumer Voice. A judgment is expected in the “following months” after the hearing, the FCA said.

Coverage Comparison

Reporting on the development has focused on two main aspects. One set of coverage details the court-ordered suspension and its practical consequences for consumers and lenders. Another area of reporting examines the FCA’s legal efforts against Consumer Voice, the consumer group that is arguing for higher payouts.

The Guardian, which has provided the only coverage examined here, reports that the FCA is trying to get Consumer Voice thrown out of court, alleging that its co-founders have not been transparent about their funding and potential conflicts of interest. The same outlet also notes that the court’s ruling means some of Britain’s biggest lenders, which have already set aside billions to pay out on claims, will not need to calculate or pay compensation until the legal process concludes.

Key Claims

  • The FCA estimated that payouts could total £7.5bn, covering about 12.1m car loans.
  • The court has ordered the FCA to suspend parts of the compensation scheme, with payouts potentially delayed until 2028 or beyond.
  • If the scheme is overturned, the FCA said it may instead tell lenders to resolve complaints individually under the usual complaints process.
  • The FCA alleges that Consumer Voice has not been transparent about its funding and potential conflicts of interest.
  • Consumer Voice, founded by ex-Which? staffers Nikki Stopford and Alex Neill in 2023, is pushing for bigger compensation, arguing the FCA scheme will low-ball victims with an average payout of £830 per mis-sold loan.
  • Consumer Voice partners with law firms and makes money by doing communications work and receiving commissions, according to the FCA’s legal filings.
  • Courmacs is providing pro bono services to Consumer Voice but would benefit from larger payouts, the FCA suggested.

Impact and Next Steps

Until the legal process concludes, lenders will not need to calculate or pay compensation under the scheme. The FCA said it would need to “decide what to do next” if the court decided to overturn the scheme. In a statement, the FCA said: “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 eight weeks, and you could take your complaint to the Financial Ombudsman Service if you think you haven’t been treated fairly,” the statement added.

The regulator’s boss, Nikhil Rathi, told MPs on the Treasury committee last month that if the scheme were to be shot down, it could cost lenders an additional £6bn and take three years to resolve claims through a complaints-led approach.

The FCA initially introduced the scheme in March to compensate motorists who were treated unfairly. Consumer Voice argues that the FCA scheme will be low-balling victims and accused the FCA of deferring to lenders’ concerns about big bills at the expense of consumer protection.

In legal filings, the FCA suggested Consumer Voice was not being honest about its business model and relationship to Courmacs. “It has failed to disclose details of, or explain, its funding of its application, or the nature of its relationship with its solicitors,” beyond saying that Courmacs was offering representation on a pro-bono basis, the legal filings said. Both firms “operate for profit in the sphere of claims management”, the FCA said.