UK's FCA faces legal challenge over car loan redress scheme - report

(Sharecast News) - A consumer group is reportedly preparing to take Britain's financial regulator to court in an attempt to overhaul the £9.1bn compensation scheme agreed for victims of the car loan scandal, claiming they have been shortchanged. Lawyers working for Consumer Voice have told the Financial Conduct Authority (FCA) they intend to challenge the redress programme in order to protect drivers' interests, the Guardian newspaper reported, citing sources familiar with the group's plans.

The scandal rocked the loan industry and prompted controversial interventions from Finance Minister Rachel Reeves to limit payouts. Drivers were overcharged for loans as a result of commission payments between lenders and car dealers between 2007 and 2024.

Any challenge would mean forcing the FCA to appear before the upper tribunal, where a judge would be asked to review the merits of the long-awaited compensation programme and could end up delaying payouts to drivers, which were widely expected to begin as early as this summer.

In response, the FCA said in a statement: "Our scheme is the quickest, fairest way to compensate consumers. It seems contradictory that organisations claiming to represent consumers would seek to delay payouts for millions of people."

However, Consumer Voice - which has paired up with the claims-focused law firm Courmacs Legal to file the challenge - believes it is protecting consumers from lowball payouts, with the FCA currently due to hand aggrieved borrowers £830 on average per mis-sold loan.

Consumer Voice told the FCA it had given too much weight to concerns that banks and specialist lenders would suffer if the compensation bill was too large, rather than focusing on consumer protection. It added the FCA had unfairly capped the interest paid out on compensation payouts and wrongly narrowed the scheme in a way that limits redress for drivers.

A formal challenge could be filed as early as Friday, ahead of the 27 April deadline. It would be the first time a consumer-focused group had legally challenged the regulator over a compensation scheme, the report stated.

COMPENSATION SCHEME 'UNFAIR'

Consumer Voice co-founder Alex Neill said the FCA had designed a scheme that leaves ordinary motorists hundreds of pounds out of pocket. "We are taking this unprecedented step to challenge the regulator's redress scheme because it doesn't deliver fair or lawful compensation for drivers," she said.

"As it stands, millions of people will be undercompensated, and the lenders involved in this scandal won't be meaningfully held to account," Neill added.

"Consumers have been let down by the lenders who mis-sold them car finance. They should not be let down again by the regulator that is meant to protect them."

The FCA issued the final terms of the £9.1bn compensation programme last month. About £7.5bn will be paid out to borrowers, while the remaining £1.6m will cover administrative costs for banks and specialist lenders.

Lenders heavily lobbied regulators and ministers in the two years since the scandal gained steam. Resulting interventions included Reeves urging the supreme court not to award large payouts early last year. In the summer, she also considered overruling the court had it sided too closely with consumers.

Reporting by Frank Prenesti for Sharecast.com