The UK’s financial regulator has provided an update on the future of the car finance scandal’s compensation scheme impacting millions of drivers.
At the start of July, the Financial Conduct Authority announced that the motor finance scheme had been partially suspended.
The FCA is facing several legal challenges from Consumer Voice, represented by Courmacs Legal, Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance.
In December this year, or February 2027, the Upper Tribunal will hear the legal challenges to the FCA’s motor finance redress scheme, prompting the regulator to partially suspend the framework.
There are 12.1 million eligible agreements, which could see drivers receive £829 per agreement if the scheme is to go ahead, for a total cost of £9.1billion.
Speaking to the Treasury Committee about the latest developments to the scheme, Nikhil Rathi, CEO of the FCA, explained that the regulator wanted compensation to be paid soon.
The original timeframe outlined by the FCA would have seen the majority of compensation claims settled by January 2028.
Speaking to MPs, Mr Rathi emphasised that millions of people needed the money as they were struggling with the cost of living crisis.
The FCA recently suspended its car finance compensation scheme amid legal challenges
|
PA/GETTYHe confirmed that the FCA was speaking with lenders and law firms about the compensation scheme and how it could move forward in the near future.
Mr Rathi continued, saying: “The claims that are not eligible for redress and are not at issue in the litigation will move forward.
“And so consumers who are not entitled to redress will get an answer, so we’ll see how many of those seek to challenge that answer in the Financial Ombudsman Service.”
The FCA has consistently urged motorists to avoid using a claims management company or law firm to get compensation from their car finance agreement.
Nikhil Rathi, CEO of the FCA, confirmed that 12.1 million agreements could be included in the final redress scheme | PARLIAMENT TV
It has warned that going through a company, rather than the FCA’s redress scheme, could see motorists lose more than 30 per cent of their compensation.
The regulator, alongside the Advertising Standards Authority, Solicitors Regulation Authority and Information Commissioner’s Office, continues to take action against unlawful ads.
Since January 2024, the joint taskforce has been responsible for the removal or amendment of up to 1,200 misleading car finance claims adverts.
Reacting to the latest update, Kevin Durkin, lawyer at HD Law, said: “The FCA has left millions of drivers in limbo by delaying and now looking to pause a scheme meant to provide consumers with an avenue of redress, while the court route remains open and without such delays.
The FCA originally planned for the majority of drivers to receive their compensation by the end of 2027 and the beginning of 2028 | FCA
“People do not have to sit and wait, and those who want their money back are using a specialist law firm to get it.”
Mr Durkin is the only UK lawyer to have taken a car finance claim to the Supreme Court and successfully won the case.
He acknowledged that the redress scheme remained a “hotly contested area of law”, with drivers requiring proper representation.
“Even if the FCA scheme were to ever come into force, we believe that more than 45 per cent of claims will still require litigation to be paid out, whether because they fall outside the scheme, are capped within it, or are simply worth more than it will offer,” Mr Durkin said.