|
Planned payouts for people mis-sold a car loan in the UK are likely to be delayed until at least 2027, as the UK watchdog faces legal battles which threaten to derail its compensation scheme. The Financial Conduct Authority said it has already spent more than £20 million developing the plans and that further costs lie ahead. The regulator is facing four separate legal challenges from companies who are not happy with its plans for redress, which involve paying out an average of £829 for an estimated 12.1 million eligible car finance agreements. These agreements involved so-called discretionary commission arrangements widely known as ‘hidden’ commission which meant motorists did not get a fair deal when they took out a loan on their car, according to the FCA. Payments through the scheme were meant to start this year but are now being delayed. Sarah Pritchard, deputy chief executive of the FCA, told MPs at the Treasury Select Committee: ‘I want to be straightforward that the legal challenge will add delay and extra costs to the scheme as a whole. ‘If the scheme goes ahead, the delay, we believe, will result in payments not before 2027.’ The financial services arms of carmakers Volkswagen AG and Mercedes-Benz Group AG and the car finance arm of Montrouge, France-based bank Credit Agricole SA, as well as Consumer Voice, a group representing consumers, are asking the courts to quash the scheme, arguing the rules are unlawful. No UK bank has decided to challenge the scheme, which is set to cost the industry £9.1 billion. In a letter to the committee, FCA Chief Executive Nikhil Rathi warned that the scheme could be ‘struck down in whole or part’ as a result of the legal challenges, and it would need to then decide what to do next so that people still get compensation they are owed. This could involve switching to a complaints-led approach to resolving individual claims, which he estimates would cost lenders £6 billion more and take three years. Without a scheme in place, the FCA estimates that up to 19 million complaints would need to be handled individually. Developing the scheme has already cost the FCA a body funded by the fees it charges regulated firms £20.5 million for work carried out over the course of more than two years. It estimates the legal challenge will add about £2.7 million in costs, and it currently has around 80 staff involved in motor finance-related work. Meanwhile, Pritchard said the watchdog was considering ways to potentially pay out compensation early for some consumers. ‘One thing we are exploring is whether there are options for consumers who wish to receive money now, particularly in a rising budget situation,’ she told the committee. ‘If consumers wish to receive compensation now, we are exploring what the options for that might be.’ ‘Consumers have been waiting a very long time to be compensated and, one way or the other, they need to be compensated,’ Pritchard told the committee. By Anna Wise and Henry Saker-Clark, Press Association Business Reporters Press Association: Finance source: PA Copyright 2026 Alliance News Ltd. All Rights Reserved.
|
