FCA pauses part of compensation process
The future of the motor finance redress scheme has been thrown into further uncertainty after the Financial Conduct Authority partially suspended the package designed to help claimants seek compensation without using law firms.
The regulator wants consumers to rely on the redress process rather than pursue claims through the courts, but said the scheme must now wait for the outcome of legal challenges to its terms.
Tribunal hearings set for December and February
The challenges will be heard in the Upper Tribunal in December and February next year.
Until then, parts of the scheme will remain paused while the regulator assesses how the legal process affects the compensation framework.
Payments may not begin until 2027
The FCA said its best estimate is that payments could begin at some point in 2027.
That timeline depends on the scheme being upheld and on the tribunal’s judgment not being appealed.
If the scheme is struck down in full or in part, the regulator will need to decide the simplest and most efficient way for motor finance lenders to compensate affected consumers.
Revised terms could push redress to 2028
The FCA warned that developing revised terms could significantly delay the process.
In that scenario, compensation may not be paid until 2028 or later.
The regulator said the partial suspension is intended to avoid unnecessary duplication of work if any of the legal challenges succeed.
Challenges come from both sides
The scheme is being challenged by parties on both sides of the dispute.
From the claimant side, Courmacs Legal has brought a challenge.
From the lenders’ side, Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance are also challenging the terms.
Lenders can still prepare
The FCA said the partial suspension allows lenders to continue preparing for the scheme and to move complaints forward where possible.
At the same time, it prevents firms from carrying out work that may need to be repeated if the tribunal forces changes to the framework.
The regulator also said the arrangement gives some consumers clarity sooner, because firms must tell complainants when they are not due compensation.
FCA says scheme remains best route
The regulator defended the redress package and said it would continue to support it through the legal process.
“Our scheme is the quickest, fairest and most efficient way to compensate consumers,” the FCA said, adding that it would defend the framework robustly.
Warning over claims firms and law firms
The FCA also said it has seen poor practice from some claims management companies and law firms.
It reminded consumers that a dedicated template letter is available for bringing complaints directly.
The regulator’s message reinforces its preference for consumers to use the official redress process rather than rely on paid representation.
Delay may help law firms
Any postponement could benefit law firms that continue to argue they are the better route for consumers seeking compensation.
This week, north-west firm Barings Law secured a notable victory in the Court of Appeal after judges ruled that a collective action could proceed over mis-sold car finance.
Following the ruling, the firm said it would run cases in which claimants keep 100% of their compensation, while costs are recovered from defendants.
