FCA ordered to partly suspend car finance compensation scheme
Summary
The UK’s financial regulator, the Financial Conduct Authority (FCA), has been ordered by a court to partly pause its £9.1 billion car finance compensation program. This delay affects millions of drivers who were overcharged on car loans due to unfair commission practices between lenders and dealers from 2007 to 2024.Key Facts
- The FCA planned to pay an average of £830 to affected motorists this year.
- A court ruling paused parts of the compensation scheme until a hearing set for December or February next year.
- Three lenders—Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance—and a consumer group challenged the scheme.
- If the scheme is later overturned, compensation might be handled through individual complaints, which could take years and cost lenders more money.
- The FCA warned that resolving claims through individual complaints could add £6 billion in costs and take about three years.
- The FCA introduced the scheme in March to compensate around 12.1 million car loans with estimated payouts of £7.5 billion plus £1.6 billion in costs.
- The watchdog faces nearly a £3 million cost due to legal challenges, impacting its internal resources.
- The commission practice causing the scandal was banned in 2021 and was considered the worst UK consumer finance scandal since Payment Protection Insurance (PPI).
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