A major consumer group has launched a legal challenge against the Financial Conduct Authority, claiming its £9.1billion car finance compensation scheme is unfair to drivers and benefits lenders instead.
Consumer Voice warned millions of motorists could miss out on money they are owed and has formally told the regulator it will take the case to the Upper Tribunal.
If successful, the challenge could force lenders to pay billions more in compensation. This is the first time a consumer group has taken legal action against a UK regulator over a compensation scheme of this kind.
The FCA‘s plan, introduced at the end of March, covers more than 12 million car finance agreements dating back to 2007. On average, drivers are expected to receive around £830 each.
But in a controversial move, the regulator confirmed that 4.7 million agreements identified as mis-sold will not receive any compensation under the current scheme.
These excluded cases involve deals where car dealers earned commission from lenders based on the interest rates charged to customers. The FCA banned this practice in 2021 after finding that the fees were often hidden and encouraged higher interest rates.
Consumer Voice argued both the exclusions and the way compensation is calculated are “deeply flawed” and fail to grasp the impact of the scandal.
Alex Neill, co-founder of Consumer Voice, said: “We support a redress scheme, but this one does not go far enough. Millions of drivers were overcharged through hidden and unfair commission, yet the FCA’s scheme risks leaving many of them missing out on hundreds of pounds they’re owed.”
The Consumer Voice warned that the compensation for the car finance scandal fell short
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PA/GETTYShe added: “People have already been let down once by lenders. They should not now be let down again by the regulator that is supposed to protect them. The FCA needs to fix the scheme to ensure it delivers fair and lawful compensation for drivers.”
According to the group, most affected motorists could be underpaid by between £200 and £300. In more serious cases, the shortfall could be as much as £800 to £900.
Consumer Voice warned the formula used by the FCA relies on “complicated calculations” that do not properly reflect how much extra borrowers actually paid.
In a statement, the group said: “Most consumers will receive redress based on a complex ‘hybrid’ redress calculation that is fundamentally flawed and significantly underestimates the true harm suffered.”
It is estimated 12.1 million agreements were impacted by the car finance scandal
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GETTYResearch carried out by Consumer Voice in 2025 found just 22 per cent of people remembered having commission clearly explained when they took out their car finance. Nearly one in five said their repayments made it harder to cover everyday household bills.
Trust in the system also appears low, with only 22 per cent of drivers surveyed stating they believed lenders would follow the rules when calculating payouts, while only seven per cent said they trusted lenders to provide clear and unbiased information.
But the FCA has defended its approach, insisting the scheme is the best way to get money back to consumers quickly.
A spokesman said: “Our scheme is the quickest, fairest way to compensate consumers. It seems contradictory that organisations claiming to represent consumers would seek to delay payouts for millions of people.”
The car finance scandal has caused drivers to mistrust lenders | GETTY
Consumer Voice is working with Courmacs Legal on the case.
The firm said it is also taking separate legal action against Lloyds Banking Group over historic car finance deals.
Despite the legal challenge, Consumer Voice said it does not want payments to be delayed.
Instead, it argued that compensation should continue while the tribunal urgently reviews how payouts are calculated.