Millions of UK motorists affected by the £9 billion car finance mis-selling scandal are facing a longer wait for compensation, with the Financial Conduct Authority (FCA) warning that payments are now unlikely to begin before 2027.
The delay stems from ongoing legal challenges to the regulator’s redress scheme, which was intended to resolve one of the largest consumer finance scandals since the Payment Protection Insurance (PPI) mis-selling crisis. The FCA had planned to begin payouts this year, but proceedings have been paused while the courts consider arguments brought by several industry players and a consumer group.
The scheme, which has already cost more than £20 million to develop, is expected to compensate eligible motorists an average of £829 across an estimated 12.1 million car finance agreements. At the centre of the case are discretionary commission arrangements, often described as hidden commissions, which allowed car dealers to increase interest rates in order to boost their own earnings, potentially leaving customers overpaying on loans.
In correspondence with Parliament’s Treasury Select Committee, FCA chief executive Nikhil Rathi said it was highly unusual for a compensation programme of this scale to be halted for such a long period. He stated that, due to the legal challenges, “any payouts are now increasingly unlikely before 2027.”
Rathi defended the regulator’s approach, arguing that the scheme was designed to be both fair to consumers and proportionate for firms. He noted that most lenders and industry bodies had chosen not to challenge the plan, with some suggesting it offered the quickest path to certainty for both customers and investors. However, he expressed disappointment that four commercial parties had decided to pursue court action.
The legal challenge has been brought by the financial services arms of Volkswagen and Mercedes-Benz, Crédit Agricole’s car finance division, and consumer group Consumer Voice, all of whom are seeking to have the scheme declared unlawful. No major UK banks have joined the challenge. Lloyds Banking Group, one of the most exposed lenders, has already set aside more than £1 billion to cover expected costs from the industry-wide bill, now estimated at £9.1 billion.
The FCA itself has spent £20.5 million over the past two years developing the compensation framework, with a further £2.7 million expected to be added due to the ongoing litigation. Around 80 staff remain assigned to motor finance cases as the scale of the issue continues to grow, having previously been forecast at up to £44 billion before the Supreme Court narrowed potential liability.
Despite delays, FCA deputy chief executive Sarah Pritchard told MPs the regulator is still exploring options to deliver early payments to some consumers, stressing that affected motorists have already waited too long and must ultimately receive compensation.
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