The Financial Conduct Authority is urging law firms and claims management companies involved in any challenge to its motor finance compensation scheme to consider the impact on their clients, warning that legal action could delay redress for consumers who have already waited more than two years.
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.
The regulator has put the total cost of the scheme at £9.1bn, covering 12.1 million agreements, with average payouts of around £830. It estimates that roughly £7.5bn will go directly to customers, with the balance covering administration costs such as tracing buyers, processing claims and making payments.
Read Motor finance redress: from commission to compensation
The regulator said it has “no vested interest” in setting up a motor finance redress scheme, but remains focused on securing fair compensation for consumers as quickly as possible while supporting a healthy motor finance market in future.
The intervention follows Consumer Voice’s announcement that it plans to challenge the FCA’s compensation framework, arguing that some motorists risk being underpaid under the current methodology.
FCA warns on payout delays
In a statement published on April 23, the FCA said any law firm or claims management company involved in a potential challenge against the scheme that also has clients making motor finance claims should “consider their position and that of their clients carefully”.
It said those firms should, at a minimum, write to affected clients to explain that they are involved in a challenge likely to delay compensation, give them the option of exiting their contract and strongly consider waiving any fees.
The FCA said: “What matters to us is getting fair compensation for consumers as quickly as possible and supporting a healthy motor finance market for the future. That’s what our scheme will do, and it’s free for consumers to use.
“Any law firm or claims management company (CMC) involved in a potential challenge against the scheme that also has clients making motor finance claims should consider their position and that of their clients carefully.”
The FCA added that its scheme will put £7.5 billion back into consumers’ pockets and said that, with pressure on household bills rising, those affected should not be forced to wait longer for compensation.
Consumer Voice challenge
Consumer Voice argues that the scheme does not go far enough and claims the methodology used to calculate compensation risks underestimating the true financial impact on borrowers, particularly because of assumptions around interest rates and losses.
The group said its challenge is not intended to stop the compensation process, but to ensure it more accurately reflects consumer losses.
Lenders and consumer groups have until 5pm on 27 April to challenge the FCA scheme.
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