Consumer champion Consumer Voice is to challenge the Financial Conduct Authority’s motor finance compensation scheme, potentially delaying payouts for millions of people.
The FCA’s redress programme, launched at the end of March, is designed to compensate motorists who were mis-sold car finance through hidden commission arrangements between 2007 and 2024.
Concerns over payout levels
The FCA has put the total cost of the scheme at £9.1bn covering 12.1 million agreements, with average payouts of around £830. Roughly £7.5bn is expected to go directly to customers, with the remainder covering administration costs such as tracing buyers, processing claims and making payments.
Read Motor finance redress: from commission to compensation
However, Consumer Voice argues the scheme does not go far enough and could leave drivers short-changed, claiming the methodology used to calculate compensation risks underestimating the true financial impact on borrowers, particularly due to assumptions around interest rates and losses.
Alex Neill, co-founder of Consumer Voice, said: “We support a redress scheme, but this one does not go far enough. Millions of drivers were overcharged through hidden and unfair commission, yet the FCA’s scheme risks leaving many of them missing out on hundreds of pounds they’re owed.
“People have already been let down once by lenders. They should not now be let down again by the regulator that is supposed to protect them. The FCA needs to fix the scheme to ensure it delivers fair and lawful compensation for drivers.”
Fixed formula questioned
Under the FCA scheme, it says, compensation is calculated using a fixed formula that consumers cannot challenge, even if their individual circumstances suggest they suffered greater financial harm.
Consumer Voice said it has put the FCA on notice of its intention to apply to the Upper Tribunal to review how the scheme has been designed, particularly the calculation of compensation.
The group said its challenge is not intended to stop the compensation process, but to ensure it more accurately reflects consumer losses.
“Our position is that the scheme should still be able to get up and running, while the Tribunal looks urgently at the parts of the rules dealing with redress. The aim is to fix the flaws, not to stop compensation.”
The group also raised concerns about consumer trust, citing research showing only 22% of customers believe lenders will follow FCA rules when calculating compensation with just 7% trusting them to provide clear and impartial information.
Shanika Amarasekara, chief executive of the Finance & Leasing Association, has stated the trade body wanted the FCA to deliver a responsible, workable sheme “that genuinely draws a line under the commissions issue” and restores regulatory certainty.
Lenders and consumer groups have until 5pm on 27 April to challenge the FCA scheme.
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