Car finance payouts could be delayed by years over legal challenges, says FCA
Summary
The UK's Financial Conduct Authority (FCA) warned that legal challenges against its car finance compensation scheme could delay payouts to drivers by up to three years and add more than £6 billion in extra costs to lenders. The FCA said court cases could push payouts into 2027 and increase expenses for banks involved in a scandal over loan overcharging from 2007 to 2024.Key Facts
- The FCA created a £9.1 billion compensation plan to repay drivers overcharged on car loans.
- Four parties are legally challenging this compensation plan: Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance, and the consumer group Consumer Voice.
- These legal actions may delay payouts until 2027 or later.
- If the court rejects the FCA scheme, the regulator may need to create a new plan or let individual complaints be handled by the Financial Ombudsman Service.
- Handling claims through complaints instead of the current scheme could cost lenders over £6 billion more and take three years longer to finish.
- The FCA must spend around £2.7 million more to manage the legal challenges.
- The FCA is funded by the companies it regulates and will have to redirect resources due to these costs.
- The scandal involves commission payments between lenders and car dealers that caused loan overcharges from 2007 to 2024.
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