Consumer group warns FCA model could under-compensate millions of motorists across finance deals
A legal challenge is being mounted against the Financial Conduct Authority’s proposed car finance redress scheme, with campaigners warning that it risks under-compensating millions of consumers.
Consumer Voice said it will challenge the scheme under section 404D of the Financial Services and Markets Act 2000, arguing that while an industry-wide solution is necessary, the current model “fails to deliver fair, adequate or lawful consumer redress and systematically under-compensates consumers”. It added that the calculation for offering redress is “fundamentally flawed and significantly underestimates the true harm suffered”.
The scheme was set out in Policy Statement PS26/3, published on 30 March 2026, and applies to regulated motor finance agreements entered into between April 2007 and November 2024 where commission was paid to a credit broker. It is divided into two parts covering agreements before and after April 2014.
The FCA estimates that around 12.1 million agreements could be eligible for compensation, with average payouts of approximately £830 per consumer and a total redress pot of £7.5bn.
The group raised particular concerns about the methodology underpinning the scheme, stating: “The formula at the centre of the scheme uses benchmark interest rate adjustments that, in our view, underestimate the true scale of the overcharging. The FCA has drawn a line between older and newer agreements and applied standardised assumptions about what borrowers lost. But that standardisation comes at a price.”
Consumer Voice further argued that consumer redress has been minimised “in order to protect lenders in a way which misunderstands and misapplies the FCA’s market integrity objective whilst wrongly minimising the consumer protection objectives of the FCA, which should drive consumer redress schemes”.
Alex Neill, co-founder of consumer rights organisation Consumer Voice, said: “The FCA has designed a scheme that leaves ordinary motorists hundreds of pounds per claim out of pocket. That cannot be left unchallenged.
“The FCA has treated the Supreme Court’s judgment in Johnson as a rigid benchmark in order to exclude most consumers from receiving full commission redress, even though the court itself acknowledged it was a fact sensitive decision.
“Its methodology relies on APR benchmarks that underestimate the real harm people suffered, and its interest calculations fall hardest on those who could least afford to be overcharged in the first place.”
The proposed scheme follows regulatory action in relation to discretionary commission arrangements in the motor finance market, which may have led to consumers paying inflated borrowing costs.
An FCA spokesman 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.”
The dispute highlights the tension between delivering redress at scale and ensuring compensation accurately reflects individual loss, particularly where standardised models are used in place of case-by-case assessment.
Consumer Voice is being represented on a pro bono basis by Courmacs Legal, which acts for around 1.6 million motor finance claimants, with the challenge expected to be brought in the Upper Tribunal (Tax and Chancery Chamber).
The group said its position is informed by consumer research, including a survey of just over 2,000 people who had taken out motor finance agreements between 2007 and 2024, conducted as part of its response to the FCA’s consultation.
A successful challenge could have significant implications for both the structure of the scheme and the level of compensation ultimately paid to affected consumers.