𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

The financial watchdog has warned that millions of consumers face “fresh uncertainty” about compensation for being mis-sold a car loan as it faces a legal battle over its £9.1 billion scheme.

Three lenders and a consumer group have launched legal challenges to the Financial Conduct Authority’s (FCA) industry-wide redress scheme after setting out the final details in March.

The financial services arms of carmakers Volkswagen and Mercedes-Benz and the car finance arm of French bank Credit Agricole are appealing the plans, which are set to cost the industry about £9.1 billion.

On the other hand, Consumer Voice, a group representing consumers, is also challenging the compensation package which it argues will short-change drivers who suffered harm when they took out a loan.

The FCA said it would defend its scheme which it says is “fair to consumers and proportionate for firms”, and noted that none of the claims received are expressly in the name of individual consumers.

The regulator said in a statement: “We will defend the scheme robustly as lawful and the best way to resolve such a widespread, long running and complex issue.

“These legal challenges create fresh uncertainty for millions of consumers and for the second largest consumer credit market, with £39 billion borrowed in 2024.

“We are therefore engaging at pace with lenders and consumer groups to understand the breadth of views as we determine next steps for the scheme, including contingency planning.”

The lawsuits indicate that there could be delays to the long-running motor finance saga.

The FCA had said in March that it was expecting millions of claims to be paid out this year and the vast majority settled by the end of 2027.

Despite the uncertainty, the watchdog is still advising consumers to complain directly to their lender if they think they might be owed compensation, which they can do for free using a template letter on its website.

“You do not need to use a law firm or claims management company, which may charge over 30% of any compensation,” it urged.

The FCA said it would provide further advice to firms next week, and also praised the “commitment” from lenders who took the “difficult decision” to implement its scheme.

Industry body Finance and Leasing Association and major lenders including Lloyds, Barclays, Santander and Close Brothers have decided not to challenge the scheme.