Car finance compensation scheme could be delayed due to legal challenge
Around 12 million victims of mis-sold car finance may have to wait to receive £830 in compensation following a challenge from a consumer group...
A consumer group is planning to legally challenge the £9.1 billion scheme designed to compensate victims of the car finance mis-selling scandal.
Consumer Voice has said the scheme brought forward by the Financial Conduct Authority (FCA), which regulates the financial services industry in the UK, "risks underpaying drivers by not reflecting what they lost".
Under the FCA's plans, payouts were due to begin this summer, averaging at £830 per case. However, Consumer Voice's challenge could force the FCA to the Upper Tribunal, where a judge would review how the scheme was designed and how compensation was calculated – potentially delaying millions of payouts.
Alex Neill, co-founder of Consumer Voice, said: “We support a redress scheme, but this one does not go far enough. Millions of drivers were overcharged through hidden and unfair commission, yet the FCA’s scheme risks leaving many of them missing out on hundreds of pounds they’re owed.
“People have already been let down once by lenders. They should not now be let down again by the regulator that is supposed to protect them. The FCA needs to fix the scheme to ensure it delivers fair and lawful compensation for drivers.”
Consumer Voice also argues that the FCA's scheme is too narrow, meaning millions of victims of mis-sold car finance agreements will not be able to claim. It also said compensation will not be calculated in a way that reflects how much financial strain victims actually experienced.
In a statement, an FCA spokesperson said: "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."
The scheme was announced late last month to compensate buyers who took out 'unfair' car finance deals between April 2007 and November 2024.
The compensation package comes after a Supreme Court ruling in August 2025 that stated car finance deals with hidden commissions from lenders to dealers were not unlawful, overturning a decision that could have led to tens of billions in payouts to victims of these deals.
However, the court upheld a decision that granted compensation to a claimant who had paid particularly large commissions and had entered into an 'unfair' relationship with the lender. This means that there is potential for victims to claim where the situation was unfair, such as where interest rates were not properly disclosed.
Previously, the FCA had estimated that victims could receive around £700 per deal, but it later confirmed that payouts will average at around £830 per agreement. The majority of payouts were expected to be sent out this year, with most of the rest paid by the end of 2027.
The FCA's scheme allows people to complain directly and potentially receive compensation, rather than going through the legal system.
Consumer Voice argued that payouts should not be delayed despite the challenge.
"The scheme should still be able to get up and running, while the Tribunal looks urgently at the parts of the rules dealing with redress. The aim is to fix the flaws, not to stop compensation," it said.
The legal challenge is expected to be formally filed on Friday by Consumer Voice. There has been speculation that other groups, such as lenders, could also challenge the scheme.
How will the scheme work?
The scheme will cover buyers who took out car finance agreements between 6 April 2007 and 1 November 2024 in which commission was payable by the lender to the broker.
The FCA advises that customers who weren't informed of key information about their agreement (for example, about commission payments) should complain to their lender now. Guidance on how to complain can be found on the FCA's website.
While some claims management or law firms are offering to make complaints on behalf of potential victims, these customers are able to submit their own complaint to their lender via the FCA website using the template letter provided. The FCA warns that customers who go through a claims management or law firm may end up losing a significant amount of the compensation they're owed through legal costs.
Now that the scheme is live, affected customers who have already complained will be contacted by their lender within a set timeframe depending on when the finance was taken out and when the complaint was made. Those who haven't complained will be contacted by their lender within six months and given six months to decide to opt-in to the scheme.
Those who aren't contacted within six months will have a year to make a claim directly to their lender.
Compensation will only be given under the scheme if the buyer wasn't told details of at least one of three arrangements between the lender and broker: a discretionary commission arrangement; a high commission arrangement (35% of the total cost of credit and 10% of the loan); or a contractual agreement or tie between the lender and broker which provided exclusive or near exclusive rights to lenders to provide credit.
The FCA confirmed it will monitor firms under the scheme and take action if they are not meeting the rules.
The scheme is set to cover agreements dating back to 2007, with the responsibility falling on firms to make customers aware where they may be eligible and what they need to do.
Customers may choose not to take part in the FCA's scheme and take their case to court instead, where the amount of compensation they receive will be based on the facts of their case.
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