FCA faces four lawsuits over £9.1bn compensation scheme for car loan victims | Motor finance
The UK financial watchdog is facing four legal challenges against its £9.1bn compensation plan for victims of the motor finance scandal.
The Financial Conduct Authority (FCA) said it would “robustly” defend the scheme as “the quickest, simplest way for consumers and the most effective way of getting things right for firms”.
The FCA confirmed the Guardian’s report on a legal challenge by consumer group Consumer Voice, which claimed the scheme, represented by Courmacs Legal, resulted in massive short-changes for victims.
It also faces challenges from lenders Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance.
The FCA said none of the claims received were clearly on behalf of individual consumers.
“We will strongly defend this scheme because it is lawful and the best way to tackle such a widespread, long-term and complex problem,” the FCA said. “These legal challenges create new uncertainties for millions of consumers and the second-largest consumer credit market.”
The FCA is currently required to pay aggrieved borrowers an average of £830 for each loan missold.
The FCA said it was “rapidly engaging” with lenders and consumer groups to understand the views of all parties as it looks at the next steps of the plan, including “contingency planning”.
The legal action dashes the regulator’s hopes of drawing a line at the motor finance scandal, which saw drivers overcharged for loans as a result of kickback payments between lenders and car dealers between 2007 and 2024.
The difficulties could mean the FCA goes to the top court, where a judge will be asked to review the merits of the long-awaited compensation scheme. This could lead to a delay in payments to drivers, which were expected to begin early this summer.
“We welcome the broad support for the scheme and the commitment from most lenders to implement it,” the FCA said.
“The final plan is fair for consumers and proportionate for companies. [Lenders] We took a pragmatic approach, recognizing that implementing a plan of this scale required us to make immediate decisions to simplify some complex legal and operational issues in a reasonable and lawful manner. Alternative approaches will be slower and much more costly for companies.”
The FCA published the final terms of its £9.1bn compensation scheme in March. Around £7.5 billion will be paid to borrowers, with the remaining £1.6 million covering administrative costs for banks and specialist lenders.
This is a fraction of the up to £44bn that some analysts predicted banks could have faced before the high court ruling last summer.
