The City watchdog, the Financial Conduct Authority, has been handed a clearer run at pushing through one of the largest consumer redress programmes ever seen in the UK.
The Finance and Leasing Association (FLA), which represents motor finance firms, confirmed it would not mount a legal challenge – despite admitting it still has “concerns” about the scheme.
It follows major banks including Santander, Barclays and Lloyds Banking Group all deciding to accept the plans rather than fight them in court.
The scheme – designed to compensate motorists caught up in a mis-selling scandal – could see payouts made on around 12.1 million finance agreements, with drivers receiving an average of £829 each.
In total, the watchdog expects about £7.5 billion to be handed directly to consumers.
But once administration costs and handling millions of claims are included, the bill is expected to soar to £9.1 billion.
Industry leaders had warned the programme was “unprecedented in scale”, raising fears about its wider impact on lending and the UK economy.
FLA chief executive Shanika Amarasekara said the group wanted to prioritise “a practical solution” that delivers compensation quickly while bringing “clarity and finality” to the sector.
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The regulator believes millions of payments could begin this year, with most claims settled by the end of 2027.
There had been speculation the FLA would launch a legal fight before a key deadline – but its decision to step back removes a major obstacle and paves the way for the scheme to go ahead.
Banks, too, appear keen to draw a line under the scandal.
Santander said its reservations about parts of the plan were outweighed by the need to provide certainty to customers and the wider market.
Barclays also declined to challenge the scheme, saying it wanted a “swift resolution” for consumers – but issued a stark warning about the consequences.
The bank said forcing firms to pay compensation even where there was no clear financial harm risked pushing up borrowing costs, restricting access to credit and hitting UK growth.
What will the banks do next?
Barclays added it had already exited the motor finance market in 2019 and has no plans to return.
Lloyds – through its Black Horse division – has also chosen not to fight the scheme, despite setting aside nearly £2 billion to cover potential payouts.
But the battle may not be over.
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Consumer group Consumer Voice is preparing its own legal challenge, arguing the current plans could leave millions of drivers hundreds of pounds short.
Analysts warn such a move could delay compensation for millions, and even force lenders back to the drawing board if successful.
For now, however, the path looks clearer than ever for one of Britain’s biggest financial compensation programmes to finally get under way.
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