The sudden halt to car finance payouts by the Financial Conduct Authority (FCA) will leave millions of UK motorists facing significant delays in receiving compensation for being overcharged on loans. The £9.1 billion scheme was designed to address the widespread issue of 'discretionary commissions' between car dealers and lenders from 2007 to 2024, a practice that led to inflated costs for consumers.
The court-ordered suspension follows legal challenges by three prominent lenders – Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance – alongside the consumer group Consumer Voice. The FCA's compensation scheme had projected total costs including administration to be around £9.1 billion, with average payouts of £830 per person for approximately 12.1 million car loans.
A judgment on these challenges is expected in the months following a full hearing scheduled for either December or February next year. If the court decides to overturn the compensation scheme, the FCA may instruct lenders to resolve complaints through their standard complaints procedures, which could incur an additional £6 billion in costs and extend resolution timelines by up to three years.
The delay has far-reaching implications not only for consumers but also for financial firms involved. Britain's largest lenders had already provisioned billions of pounds to cover expected compensation claims. With the scheme partly suspended, these calculations and payments will be postponed until the legal proceedings conclude. The FCA anticipates a financial hit of nearly £3 million from the legal action, which could necessitate internal resource reallocation.