The UK’s financial regulator has been accused of rushing the car finance scandal redress scheme, as millions of drivers continue to wait for compensation.
The Financial Conduct Authority confirmed in July that it would be partially suspending the car finance compensation scheme as it faced legal challenges.
In response to the Upper Tribunal confirming that it would hear legal challenges to the motor finance scheme from Consumer Voice, Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance.
The FCA has confirmed that the final compensation policy will cost £9.1billion, with 12.1 million eligible agreements and an average redress of £829 per agreement.
New legal documents seen by GB News show that Consumer Voice, represented by Courmacs Legal, have accused the FCA of “rushing” the compensation scheme.
It claims that the regulator “chose lower interest payments despite warnings from its own expert that consumers would be undercompensated by billions”.
Court documents appear to show that the FCA chose a low compensatory interest rate despite internal recognition that the Bank of England base rate plus one per cent could underpay consumers.
It adds that an eight per cent rate would “significantly increase total redress costs for firms” and “has the potential for significant market impacts”.
The FCA has come under fire for its approach to the car finance compensation scheme
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GETTYFilings claim that the redress bill was calculated to rise from £9.89billion at a three per cent floor to £10.75billion at five per cent.
Peter Andrews, who sits on the panel of the Cost Benefit Analysis (CBA) Panel, raised concerns about the redress scheme.
Mr Andrews, who also acted as the FCA’s Chief Economist from April 2013 to March 2017, described a “major defect” in the CBA did not include details about “whether consumers will be more or less protected”.
He added: “The fact that one scheme may be cheaper than another does not seem to be an adequate basis for a decision to favour the cheaper scheme.”
FCA boss Nikhil Rathi previously praised the redress scheme, noting that it would put money back in the pockets of drivers
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GETTYAlex Neill, co-founder of Consumer Voice, said the consumer rights organisation remained “resolute and confident” in its challenge to the compensation scheme.
She claimed: “The FCA’s latest disclosure shows that it deliberately decided to take over £1billion from car finance victims’ pockets, including from vulnerable consumers, to reduce the compensation bills of big lenders.”
Court documents outline that the FCA emphasises that it did not need to adopt a design within the redress scheme that could “create proxies for what a court would award by way of loss or damage in a contract or tort claim”.
Speaking to GB News, an FCA spokesperson said the regulatory body would “respond fully to these challenges in court”.
The FCA originally planned for the majority of drivers to receive their compensation by the end of 2027 and the beginning of 2028 | FCA
They added: “Our scheme is the quickest, fairest and most efficient way to put £7.5billion back in consumers’ pockets and we are defending it robustly.
“It is unfortunate the challenges have delayed payouts for consumers that were due to begin this year, especially as household bills come under greater pressure.”