Drivers who were anticipating compensation payouts averaging £829 this year are now facing uncertainty as the Financial Conduct Authority (FCA) confirms a major delay to the car finance compensation scheme. The delay follows a series of legal challenges that have thrown the process into limbo.
Legal Challenges Cause Delay
The FCA has acknowledged that it is now “unlikely” that the legal battle will be heard in court before October. Four challenges have been lodged, including one from Consumer Voice and others from lenders Volkswagen Financial Services, Mercedes Benz Financial Services, and Credit Agricole Auto Finance.
The regulator stated: “Many people will be frustrated that the legal action will delay payouts due to begin this year.” The FCA also expressed understanding of the “frustration of consumers, many of whom have waited over two years for an answer.”
Background of the Compensation Scheme
The compensation relates to “discretionary commission arrangements” where dealers increased interest rates to receive larger kickbacks, potentially overcharging motorists. In 2024, £39 billion was borrowed in this market. The FCA’s industry-wide plan aims to ensure customers receive compensation quickly while maintaining market stability.
Despite the delays, the FCA insists that its scheme is the “quickest, fairest and most cost-effective way” to resolve the issue. The regulator added: “Our industry-wide scheme is the quickest, fairest and most cost-effective way to do this. As we have said, we welcome the commitment of most lenders to implement the scheme and will defend it robustly.”
Advice for Affected Consumers
The FCA advises consumers to complain directly to their lender if they have concerns. This process is free, and the FCA website provides guidance on how to proceed and lender contact details. The regulator warns against using law firms or claims management companies, which may charge over 30% of any compensation.
