Compensation payouts are due on around 12.1 million unfair motor finance deals, but a new legal challenge could cause delays
The car finance compensation scheme was confirmed last month(Image: andresr via Getty Images)
Millions of drivers have been warned they could face delays in receiving car finance compensation after a legal challenge.
Compensation payouts are due on around 12.1 million unfair motor finance deals, at an average of £829 each.
But consumer group Consumer Voice has said it is taking the “unprecedented” step of applying for a legal review of how the Financial Conduct Authority compensation scheme is calculated, warning it could leave millions of consumers out of pocket.
The scheme is expected to see firms pay out around £7.5billion in compensation, lower than the previous £8.2billion estimate.
The total costs including administration are projected to come in at £9.1billion.
Consumer Voice is to apply to the upper tribunal for a review of the scheme, with paperwork expected to be filed to the court on Friday.
The group will argue that the scheme should “fairly reflect” the harm drivers have suffered, with “properly calculated compensatory interest”.
It said the FCA had chosen to apply the Supreme Court’s judgment in Johnson v FirstRand as a benchmark for cases which receive full commission redress.
But it claims that in doing so, it had excluded the “vast majority” of consumer complaints from receiving such redress.
Alex Neill, co-founder of Consumer Voice, said: “We are taking this unprecedented step to challenge the regulator’s redress scheme because it doesn’t deliver fair or lawful compensation for drivers.
“We support a redress scheme being put in place, but as it stands millions of people will be under-compensated, and the lenders involved in this scandal won’t be meaningfully held to account.
“The FCA has designed a scheme that leaves ordinary motorists hundreds of pounds per claim out of pocket. That cannot be left unchallenged.”
She added: “Consumers have been let down by the lenders who mis-sold them car finance. They should not be let down again by the regulator that is meant to protect them.
“The FCA must fix the scheme and deliver the fair redress that millions of UK motorists are owed.”
Consumer Voice argued there was no need to delay payouts, but a spokesperson from the FCA said: “Our scheme is the quickest, fairest way to compensate consumers.
“It seems contradictory that organisations claiming to represent consumers would seek to delay payouts for millions of people.”
James Daley, managing director of consumer group Fairer Finance, said: “Challenging the FCA’s motor redress scheme will delay payouts for millions of people and will see this saga continue to drag on for much longer than it might have.
“While the Supreme Court ruling last year paved the way for consumers to be compensated, this is quite a different scandal to ones that came before it such as PPI.”
The scheme covers car finance agreements taken out between April 6, 2007 and November 1, 2024, where commission was paid by the lender to the broker.
You may have been mis-sold if your agreement had a discretionary commission arrangement, a high rate or commission, or a contractual tie that you were not properly told about.
The FCA previously said drivers could get an average of £700 back per agreement, but it may be more or less depending on individual circumstances.
The increase in payments comes from the FCA deciding to tighten eligibility for redress so that loans with low commissions or zero interest rates will not be included.
This means fewer drivers than originally thought will be eligible, but payouts will be higher.