UK drivers mis-sold car finance face longer wait for compensation payouts
Millions of motorists awaiting compensation from the UK’s £9.1bn car finance compensation scheme face further delays after the financial watchdog was forced to pause payments.
The Financial Conduct Authority (FCA) has suspended the process as it faces legal challenges from four companies unhappy with plans to recoup mis-sold car loans.
Originally planned to begin this year, payments are now experiencing significant delays.
The UK Supreme Court has agreed to hear legal challenges in December or February next year, with a decision expected in the coming months.
The financial services arms of carmakers Volkswagen and Mercedes-Benz, the car finance arm of French bank Credit Agricole and consumer group Consumer Voice are asking the courts to strike down the plan, arguing its rules are illegal.
The FCA confirmed that the court had ordered parts of the motor finance scheme to be suspended in accordance with terms agreed with the four parties involved.
The pause means lenders will no longer be required to calculate or pay compensation to people in debt, or inform customers about the compensation they are owed, until the legal process is concluded.
This puts the brakes on the payment of an estimated 12.1 million car finance deals eligible for compensation under the FCA’s plans, at an average cost of £829 per payment.
But they will need to continue to prepare for the program and progress customer complaints as much as possible; this includes telling people whether they owe any compensation.
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Firms are also expected to contact customers who have lodged complaints to explain the legal challenges and why this is causing delays.
If the justices decide to back his plan and the decision is not appealed, payments are expected to begin in 2027.
The FCA said the courts should decide what to do next if they decide to overturn the scheme and fail to have an industry-wide compensation scheme.
This may include moving to a complaints-focused approach to resolving individual claims.
The FCA estimates that without a plan, up to 19 million complaints would need to be dealt with separately, which would take three years and cost lenders £6bn more.
