The UK’s financial regulator has confirmed that four legal challenges have been made about the car finance compensation scheme for millions of drivers.
The Financial Conduct Authority’s motor finance redress scheme was confirmed at the end of March and includes potential compensation for more than 12 million agreements.
It estimates that the total scheme would cost lenders and banks around £9.1billion, with millions of drivers expected to receive an average of £829 per agreement.
The mis-selling scandal saw motorists pay more for their car finance without being made aware that lenders and banks were receiving greater compensation.
While the FCA said lenders would be able to begin compensation payments immediately, it acknowledged that this was unlikely, as they would want to digest the terms of the scheme.
Four legal challenges have now been mounted against the car finance compensation scheme, with the FCA vowing to “robustly defend” its proposals.
One of the challenges comes from Consumer Voice, which is represented by Courmacs Legal, and is the only limited company to challenge the scheme.
Consumer Voice said it would apply to the Upper Tribunal for a review of the redress scheme, arguing that drivers would not be receiving a suitable level of compensation for their losses.
Drivers could be delayed in receiving compensation from the car finance scandal
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GETTY/PA
It argues that motorists should have the choice to access a redress scheme that “fairly reflects the harm they suffered” with “properly calculated compensatory interest”.
Alex Neill, co-founder of the consumer rights organisation, warned that “getting it wrong now would mean underpayment for millions of people to the tune of billions of pounds”.
The three other legal challenges were all lodged by lenders, namely Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance.
In a statement, the FCA acknowledged the legal challenges and confirmed that it would defend its redress scheme to ensure motorists receive compensation in a timely manner.
The FCA said the average agreement would receive £829 in compensation in the aftermath of the car finance scandal | PA
It stated that it had launched a consultation into the redress scheme and engaged widely with the industry to compensate drivers for their losses while avoiding damaging the car finance sector.
The FCA outlined that the scheme would not suit all lenders, but that it had reflected on feedback from consumer groups and lenders to ensure the final scheme would be “fair” to customers and “proportionate” for firms.
It added: “We welcome the broad support for the scheme and the commitment from most lenders to implement it.
“They have taken a pragmatic approach, recognising that introducing a scheme on this scale promptly has required us to make judgements to simplify in a reasonable and lawful way some complex legal and operational issues.
The vast majority of drivers will have received their compensation by the end of 2027 and the beginning of 2028 | FCA
“We recognise that for some lenders this has been a difficult decision. We appreciate that they have ultimately decided to put a resolution for their customers first, many of whom have been waiting for more than two years for an answer.”
The FCA said it “respected the right” of any party to challenge the scheme in the courts, but stated that no claims were expressly in the name of individual customers.
The legal challenges could cause a delay in drivers receiving compensation, with the FCA initially suggesting that the vast majority of claims would be paid by 2028.