The Financial Conduct Authority (FCA) has confirmed that compensation payments for car finance mis-selling will not be made until at least 2027, leaving millions of drivers in uncertainty. The regulator is grappling with multiple legal challenges that have stalled the rollout of the redress scheme.
Legal Challenges Mount
The FCA is facing legal action from Consumer Voice, represented by Courmacs Legal, as well as from Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance. These challenges have delayed the payment process, which was originally expected to begin earlier. The disputes center on the scope and implementation of the compensation scheme.
FCA Chief Updates Treasury Committee
Nikhil Rathi, CEO of the FCA, told the Treasury Committee that the regulator aims to pay compensation as soon as possible. He stated that claims not eligible for redress and not involved in the litigation will progress. "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," Rathi said.
Lawyer Criticises Delay
Kevin Durkin, a lawyer at HD Law, criticised the delay, saying the FCA has left millions in limbo. "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," Durkin said. He noted that drivers do not have to wait and can use specialist law firms to pursue claims through the courts. "People do not have to sit and wait, and those who want their money back are using a specialist law firm to get it." He acknowledged the redress scheme is a "hotly contested area of law" and predicted that even if implemented, over 45% of claims would still require litigation due to caps or exclusions. "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," Durkin added.
Background of the Mis-Selling Scandal
The compensation scheme relates to the widespread mis-selling of car finance agreements, particularly discretionary commission arrangements (DCAs) that allowed dealers to set higher interest rates. The FCA banned DCAs in 2021, but many consumers had already been overcharged. Average compensation per affected driver is estimated at £829.
Admin Work Continues
Despite the delays, the FCA has instructed firms to continue administrative preparations so that if the courts uphold the scheme, payments can start promptly in 2027. The regulator maintains that firms must keep processing background work to ensure a swift rollout once legal hurdles are resolved.
