FCA car finance scheme suspended and thrown into doubt

The redress package set up to enable motor finance compensation claimants to bypass law firms has been thrown into chaos with the scheme partially suspended.

The Financial Conduct Authority, which wants consumers to use the redress scheme rather than go through the court route, said today it had pressed pause pending the outcome of legal challenges. These challenges to the terms of the scheme will be heard in the Upper Tribunal in December and then February next year.

The FCA’s best estimate for when payments could begin is an undetermined date in 2027 – and even that depends on the scheme being upheld and the tribunal’s judgment not being appealed.

If the scheme is overturned in whole or in part, the FCA will have a decision to make about the simplest and most efficient way for motor finance lenders to put things right. But the regulator warns that the process for making revised terms could delay compensation until 2028 or beyond.

Challenges to the scheme have come from both sides: law firm Courmacs Legal from the claimant side and from the lenders’ Volkswagen Financial Services, Mercedes Benz Financial Services, and Crédit Agricole Auto Finance.

The FCA said a partial suspension enables lenders to keep preparing for the scheme and progress complaints as far as possible, while avoiding work that may need to be repeated if the challenges succeed. It also provides certainty for some consumers sooner, by requiring firms to tell complainants who are not owed compensation.

The organisation added: ‘Our scheme is the quickest, fairest and most efficient way to compensate consumers and we will defend it robustly.’

The announcement added the note that the FCA has seen poor practice from some claims management companies and law firms, and reminded consumers of a dedicated template letter for bringing complaints.

A delay to the scheme may benefit law firms that continue to argue they are consumers’ best option for securing compensation.

This week, north west firm Barings Law won a significant victory in the Court of Appeal when judges ruled that a collective action could be made for mis-sold car finance. This prompted the firm to pledge to run cases in which claimants keep 100% of their compensation, with costs recovered from the defendants.