The Financial Conduct Authority (FCA) has warned that payouts from the car finance scandal are likely to be delayed until at least 2027, as the UK watchdog faces multiple legal battles that threaten to derail its compensation scheme. The regulator has already spent more than £20 million developing the plans, with further costs anticipated.
Legal Challenges Mount
The FCA is facing four separate legal challenges from companies unhappy with its redress plans, which involve paying an average of £829 for an estimated 12.1 million eligible car finance agreements. These agreements involved so-called discretionary commission arrangements, widely known as hidden commission, which meant motorists did not receive a fair deal when taking out a car loan, according to the FCA.
The financial services arms of Volkswagen AG, Mercedes-Benz Group AG, and the car finance arm of Credit Agricole SA, along with Consumer Voice, a group representing consumers, are asking the courts to quash the scheme, arguing the rules are unlawful.
FCA Official Statements
Sarah Pritchard, deputy chief executive of the FCA, told MPs at the Treasury Select Committee: "I want to be straightforward that the legal challenge will add delay and extra costs to the scheme as a whole. If the scheme goes ahead, the delay, we believe, will result in payments not before 2027."
In a letter to the committee, FCA Chief Executive Nikhil Rathi warned that the scheme could be "struck down in whole or part" as a result of the legal challenges. He added that the FCA would then need to decide what to do next so that people still receive the compensation they are owed. This could involve switching to a complaints-led approach to resolving individual claims, which he estimates would cost lenders £6 billion more and take three years.
Potential Early Payments Explored
Without a scheme in place, the FCA estimates that up to 19 million complaints would need to be handled individually. Pritchard said the watchdog was considering ways to potentially pay out compensation early for some consumers. "One thing we are exploring is whether there are options for consumers who wish to receive money now, particularly in a rising budget situation," she told the committee. "If consumers wish to receive compensation now, we are exploring what the options for that might be."
The delay means that affected motorists may have to wait several more years before receiving any compensation, as the legal process unfolds and the FCA navigates the complexities of the scheme.
