Britain’s financial watchdog, the Financial Conduct Authority (FCA), has advised lenders to prepare for the possibility that its proposed car loan compensation scheme could be entirely scrapped. The regulator announced on Friday that a tribunal hearing on legal challenges to the £9.1 billion ($12.3 billion) scheme is unlikely to occur prior to October. The FCA is the UK’s financial watchdog, responsible for consumer protection and market integrity, and had hoped the scheme would draw a line under a 17-year mis-selling scandal in the motor finance industry.
The development represents a setback for the FCA, which had unveiled its final compensation framework earlier this year. Mercedes-Benz and Volkswagen are among four groups, including a consumer organisation, that have legally challenged the industry-wide scheme. In contrast, other significant lenders such as Lloyds Banking Group, Barclays, and Santander’s UK arm have accepted the revised scheme, having collectively provisioned billions of pounds to compensate affected consumers.
The FCA stated it is engaging with the Tribunal and the challenging parties regarding the potential suspension of certain elements of the scheme while retaining preparatory work. Firms have been told to prepare “on a precautionary basis” for a tribunal decision by mid-November. The regulator acknowledged the “operational strain and uncertainty” faced by firms, alongside the “frustration of consumers” who have waited over two years for a resolution. It emphasised that lenders need to be operationally and financially ready for a complaint-led and supervisory approach to address historic liabilities, even if the scheme is quashed. The FCA had previously estimated payments to consumers, averaging £830 per vehicle loan agreement, would commence this year.
