Motor finance: City watchdog faces legal battle over £9bn scheme
The City watchdog is set to face a legal challenge to its motor finance redress scheme after being accused of leaving motorists “out of pocket”.
The Financial Conduct Authority (FCA) revealed its highly-anticipated £9.1bn scheme at the end of March, which cut the headline bill for lenders from £11bn.
But Consumer Voice – a group dedicated to help consumers claim compensation – has said it is taking the “unprecedented” step of applying to the upper tribunal for a review of the scheme as it stands.
The group argued the the regulator had excluded the “vast majority” of complaints from its scheme through how its application of the Supreme Court ruling from August 2025.
The highest court in the land ruled in favour of the banks on two out of three cases but left the door open for an industry redress scheme after finding one claimants commission was outsized on the grounds of “unfairness”.
Costs were slimmed in the watchdog’s final rules proposal after the number of qualifying agreements for the scheme dropped to 12.1m from 14.2m.
Despite less people being eligible for the new scheme, the regulator anticipates an average payout of £830.
Lloyds Bank ‘disappointed’ in motor finance scheme
A number of the City’s largest banks have found themselves engulfed in the car mis-selling scandal – which relates to the use of secret commission deals between lenders and dealers that left consumers in the dark – since the beginning of 2024.
Lloyds – the UK’s largest motor finance lender – has provisioned around £2bn for potential payouts. Close Brothers is on the hook for near £400m and Santander £461m.
Banks have also hit back at the scheme accusing it of mis-interpreting the Supreme Court judgement.
Lloyds has said whilst it remains “disappointed” with the final scheme and “disagree with its conclusions” it would not legally challenge it.
Consumer Voice co-founder Alex Neill said: “We support a redress scheme being put in place, but as it stands millions of people will be under-compensated, and the lenders involved in this scandal won’t be meaningfully held to account.
“The FCA has designed a scheme that leaves ordinary motorists hundreds of pounds per claim out of pocket. That cannot be left unchallenged.”
An FCA spokeswoman 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.”