Motor finance customers may have to wait until 2027 for compensation payments after legal challenges have delayed the Financial Conduct Authority’s (FCA) proposed redress scheme.
Speaking before the Treasury Select Committee on June 9, Sarah Pritchard (pictured above), deputy chief executive of the FCA, said the regulator’s preferred compensation scheme remained the “quickest and fairest” way to deliver redress but warned that ongoing legal action would delay payments.
The FCA announced its redress scheme in March, but its implementation has since been challenged by three lenders and a separate company represented by legal firm Cormac.
The case will now be considered by the Upper Tribunal.
Pritchard told MPs on the committee: “Consumers have been waiting a long time, and they must be compensated one way or another.
“We believe that our scheme remains the quickest and fairest way to do that, and we will robustly defend the challenges.”
Sue Robinson, chief Executive of NFDA (pictured left), said: “It is disappointing that the process continues to face delays.
“Consumers and businesses alike have been waiting a long time for certainty and it is important that a fair and proportionate outcome is reached as quickly as possible.
“The sector needs clarity so that all parties can move forward with confidence.”
The NFDA has consistently called for a practical and balanced approach to the issue and said it will continue to engage with the FCA and other stakeholders on behalf of its members as further details emerge.
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FCA warns of higher costs without redress scheme
The FCA estimates that a complaints-led approach could cost the industry around £6 billion more than a centralised redress scheme and take an additional three years to complete.
Pritchard said the regulator had already spent £20.5 million on its work up to the end of March and that legal challenges would add further costs.
She also warned firms to prepare for multiple outcomes, including the possibility that no redress scheme is ultimately implemented.
She told MPs that, if the scheme proceeds, delays caused by the legal challenge mean compensation payments are now unlikely to begin before 2027.
The FCA is also examining options that could allow some consumers to receive compensation earlier while legal proceedings continue.
Treasury minister voices concern over delays
Rachel Blake, economic secretary to the Treasury, told the committee that nobody could be satisfied with the length of time consumers were having to wait for compensation.
She said: “I don’t think anybody can be happy with the amount of delay to the securing a scheme.
“Obviously, we have to recognise that a legal challenge has been made at this point, and that’s within a legitimate framework, but there are consumers out there who have experienced this situation, and I don’t think any of us will be happy with delay.”
Claims management companies under scrutiny
The hearing also highlighted growing concerns about claims management companies targeting motor finance customers.
The FCA said some consumers had been signed up to multiple claims management companies without their knowledge and warned that firms could take up to 30% of compensation payments.
The regulator has already had more than 1,000 misleading advertisements removed or amended since January 2024 and is investigating around 80 cases.
Pritchard reiterated that consumers can pursue complaints free of charge without using a claims management company.
The Government is also considering wider reforms through the Financial Services and Markets Bill, which officials said could help future mass redress schemes operate more quickly and reduce pressure on the Financial Ombudsman Service.