Motor finance lenders warned of ‘gridlock’ as £9bn scandal clogs rearview
The UK’s top banks are gearing up to put the long-running motor finance scandal in the rearview mirror but warning lights on the dashboard suggest they may still face “gridlock” on the multi-billion pound saga.
FTSE 250 lender Vanquis became the latest on Monday to confirm it would not lodge a legal challenge against the regulator’s industry redress scheme. The bank is on the hook for £3m in provisions.
Lloyds Banking Group – which owns the UK’s largest car finance lender Black Horse – has also said it would not challenge the scheme, along with industry giants Barclays and Santander.
On Sunday, the Finance and Leasing Association (FLA) – the trade body for the motor finance trade industry – confirmed it would also not contest the scheme.
“We continue to have concerns about aspects of the scheme, but our priority is that a practical solution be reached… while giving the motor finance industry and the wider market clarity and finality… For those reasons, we will not be challenging the FCA’s current scheme,” Shanika Amarasekara, chief executive of the FLA, said.
But on the flipside, compensation claimant group Consumer Voice has confirmed it is gearing up for a legal showdown after accusing the regulator of leaving motorists “out of pocket” with the scheme.
Russ Mould, investment director at AJ Bell, said: “This could leave lenders in gridlock as the implementation of the compensation scheme is delayed, with the nightmare scenario that the whole thing is overturned and existing provisions dialled up.”
Motor finance lenders set for £9bn bill
Consumer Voice said it was taking the “unprecedented” step of applying to the Upper Tribunal for a review of the scheme as it stands.
The group argued the regulator had excluded the “vast majority” of complaints from its scheme through its application of the Supreme Court ruling from August 2025.
The UK’s top court 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 claimant’s commission was outsized on the grounds of “unfairness”.
The final proposals for the Financial Conduct Authority’s (FCA) motor finance redress scheme placed headline costs at £9.1bn for the industry, a cut from previous estimates of £11bn.
Costs were slimmed after the number of qualifying agreements for the scheme dropped to 12.1m from 14.2m.
Whilst major industry players have confirmed they won’t pursue a legal challenge, several still expressed “disappointment” with the scheme.
“The likes of Lloyds, Vanquis, Barclays and the industry’s trade body look ready to put the affair in the rearview mirror and move on,” Mould said.
“Getting clarity feels as important as the favourability of the arrangements proposed by the regulator.”
A major contention from previous proposals remained in place for the final scheme, with deals going back to 2007 still set to be included.
The FCA has said it would run two schemes, one for 2014 to 2024 deals, which will allow payments to begin being made this year, and a second relating to deals pre-2014. The deadline for this scheme to be set up is August 2026.
The regulator has said its redress 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,” it added.