The Financial Conduct Authority is to move ahead with its £9.1bn motor finance compensation programme after the principal industry body joined leading lenders in ruling out any legal action.
The Finance and Leasing Association (FLA) said it had “concerns” about the initiative but that it was opting not to mount a challenge.
It follows major lenders including Santander, Barclays and Lloyds also accepting the FCA scheme despite voicing concerns that the level of compensation is disproportionate to those who suffered harm.
The FLA, which represents the UK’s motor finance firms, said it had weighed up how the regulator’s scheme would impact its members, their customers and the broader lending market given that it was “unprecedented in scale and scope, and the impact on the UK economy will be significant”.
“We continue to have concerns about aspects of the scheme, but our priority is that a practical solution be reached that ensures timely compensation for consumers while giving the motor finance industry and the wider market clarity and finality on this issue,” FLA chief executive Shanika Amarasekara said.
“For those reasons, we will not be challenging the FCA’s current scheme.”
Compensation is owed on approximately 12.1 million mis-sold agreements from a range of lenders at an average of £829 each, the financial watchdog said in March as it announced plans for its redress scheme. The FCA anticipates the total redress paid under its scheme will reach approximately £7.5 billion, assuming around 75% of eligible consumers submit a claim.
When factoring in the operational costs of administering the scheme, including processing millions of complaints, the overall bill climbs to £9.1 billion.
The FCA expects millions of claims will be settled this year, with the overwhelming majority resolved by the close of 2027.
Reports had suggested the FLA was contemplating mounting a legal challenge against the regulator, which had set Monday as the deadline for any such action.
However, the choice to abandon any opposition clears the way for the scheme to proceed and for individuals to receive compensation.
Leading lenders have similarly chosen to move on from the controversy and accept the FCA’s compensation framework.
Santander stated on Saturday that while the bank held a “disagreement” with certain elements of the scheme, this was outweighed by a “desire to bring greater certainty to our customers, shareholders and the wider motor finance sector”.
Barclays confirmed it would not be contesting the proposals “because we want a swift resolution for consumers” but issued a stark warning regarding its longer-term implications for the UK.
A spokesman said: “However, we disagree strongly with aspects which require financial redress even where customers suffered no demonstrable financial harm.
“This regulatory overreach will, in time, reduce the availability and increase the cost of consumer credit, hurt retail sales and damage consumption and growth in the UK.
“Barclays exited the motor finance market in 2019 and has no plans to re-enter it.”
Lloyds, which operates within the car finance sector through its Black Horse brand, has similarly opted against mounting a legal challenge, despite having set aside nearly £2 billion to compensate affected customers.
Meanwhile, the FCA is braced for pushback from consumer group Consumer Voice, which announced last week that it was gearing up for a legal challenge amid concerns that the scheme in its current form could leave millions of consumers out of pocket by several hundred pounds per claim.
Gary Greenwood, an equity analyst for Shore Capital Markets, noted that while lenders had reservations about how the compensation scheme had been structured, “none appear willing to pursue a formal legal challenge”.
“That contrasts with the position of consumer representatives,” he said, pointing to Consumer Voice’s intentions to pursue legal action.
“Such a challenge could delay the implementation of the scheme and/or the timing of compensation payments for affected customers.
“Whether it ultimately proves strong enough to overturn the scheme remains to be seen; however, were it to do so, lenders could be required to revisit their redress assumptions and associated provision estimates.”