Millions of UK motorists caught up in the £9 billion car finance mis-selling scandal are facing a further delay in compensation, with the Financial Conduct Authority (FCA) warning that payments are now unlikely to begin before 2027.
The regulator’s proposed redress scheme was intended to resolve one of the largest consumer finance scandals since payment protection insurance (PPI), covering an estimated 12.1 million car finance agreements. On average, affected drivers were expected to receive around £829 each after being impacted by so-called discretionary commission arrangements, where dealers could raise interest rates to increase their own earnings.
However, the compensation plan has been stalled by legal challenges brought by several motor finance providers and a consumer advocacy group. The FCA has already spent more than £20 million designing the scheme, which was originally due to start payouts this year.
In evidence submitted to the Treasury select committee, FCA chief executive Nikhil Rathi said the delay was unprecedented, noting that it is highly unusual for a compensation framework of this scale to be paused for such a long period. He said that as a result of ongoing court proceedings, any payouts are now “increasingly unlikely before 2027.”
Rathi said the regulator believes the scheme is fair and balanced, adding that most lenders representing the majority of the market did not challenge the proposals. He said several had acknowledged that, despite reservations, the plan offered the most efficient path to resolving uncertainty for both consumers and investors. He expressed disappointment that four commercial parties had chosen to pursue legal action instead.
The companies challenging the scheme include the financial services arms of Volkswagen and Mercedes-Benz, the car finance division of French bank Crédit Agricole, and consumer group Consumer Voice. They are seeking to have the scheme struck down on legal grounds. No major UK bank has joined the challenge, with Lloyds Banking Group, one of the most exposed lenders, already setting aside more than £1 billion to cover expected liabilities.
The FCA has also spent an additional £20.5 million over the past two years developing the scheme, with a further £2.7 million expected in legal costs linked to the ongoing court battle. Around 80 staff are currently working on the motor finance investigation, which has grown significantly in scale since earlier estimates suggested potential liabilities could reach £44 billion before being reduced by a Supreme Court ruling.
Despite the delays, FCA deputy chief executive Sarah Pritchard said the regulator is exploring options to make early payments to some consumers, acknowledging the long wait faced by those affected.
