FCA defends collective approach, warning litigation may slow compensation and increase costs for firms and consumers
The Financial Conduct Authority (FCA) has issued a statement addressing legal challenges to its motor finance consumer redress scheme, warning that the proceedings could delay compensation for affected consumers.
The regulator confirmed that its industry-wide scheme remains, in its view, the fastest and most efficient route to deliver compensation to consumers who were treated unfairly. It stated that a collective approach would provide certainty for both consumers and firms, while maintaining confidence in the financial services market.
The FCA emphasised that alternative approaches, including individual litigation, would likely be slower and more costly, both for firms and consumers. It maintained that the scheme had been designed to balance the need for fair compensation with proportionality for firms operating within the sector.
The statement follows confirmation that the scheme has been legally challenged, with the FCA acknowledging that this development is expected to delay the delivery of compensation payments. The regulator confirmed that it has received four legal challenges: one from Consumer Voice, a limited company represented by Courmacs Legal Ltd, and three from lenders Volkswagen Financial Services, Mercedes Benz Financial Services, and Crédit Agricole Auto Finance.
In its response, the regulator highlighted that it had undertaken extensive engagement with stakeholders, including consumer groups and industry participants, during the design of the scheme. It noted that changes had been made to reflect feedback received through consultation, although it accepted that not all parties would agree with the final outcome.
The FCA reiterated its position that the final framework is fair to consumers and proportionate for firms, forming part of a broader effort to address historic issues in the motor finance market. The scheme is intended to compensate customers who were affected by failures to disclose commission arrangements and other relevant information in motor finance agreements.
The regulator added that it is currently considering its response to the legal challenges and will provide further updates in due course.
The motor finance redress scheme, confirmed in March 2026, represents one of the largest consumer compensation programmes in the UK financial sector, covering agreements entered into between 2007 and 2024. It is designed to provide a structured and consistent method for assessing and delivering compensation to eligible consumers.