Car finance: Partial suspension of redress scheme
Delays to the motor finance redress scheme – possibly into 2028 and beyond – show that consumers need representation more than ever, claimant lawyers have argued.
They said yesterday’s announcement [1] by the Financial Conduct Authority indicated that litigation was likely to become a more popular route to compensation – despite the regulator’s continuing rhetoric about consumers not needing a lawyer.
In April, consumer rights group Consumer Voice announced it would challenge the scheme [2] in the Upper Tribunal, while three lenders – Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance – have also launched actions.
The FCA said yesterday that the challenges would be heard either in December 2026 or February 2027.
In the meantime, the tribunal has suspended parts of the scheme with the agreement of all parties.
As a result, lenders are not required to calculate or pay redress, or send communications about compensation owed under the scheme, until the proceedings conclude. They have to continue complying with all the rules not suspended, and keep complainants informed about what is happening.
The FCA said that if the scheme was upheld and the judgment not appealed, payments under the scheme should begin in 2027.
“If the scheme is overturned in whole or part, we will need to decide what to do next.
“A compensation scheme is the simplest route for consumers and the most efficient way for lenders to put things right. However, if we were to seek views on a revised scheme that could face further legal challenge, and compensation could be delayed until 2028 or beyond.
“We want to secure fair compensation for consumers as quickly as possible. So, if the scheme is overturned, we may instead tell lenders to resolve complaints individually under the usual complaints process.”
This would mean lenders having to respond within eight weeks, and complainants able to take their case to the Financial Ombudsman Service if they believed they have not been treated fairly.
The FCA notice concluded by reminding consumers that, if they were signed up with a law firm or claims management company and wanted to cancel, any fee charged “must be reasonable and reflect the work done”.
It added: “Most car finance claims are still at an early stage, so you should check any fee demand very carefully.
“We and other regulators have seen poor practice from some CMCs and law firms. If you are concerned about how they have handled your claim, you should complain directly to the firm. We have created a template letter to help.”
Alex Neill, co-founder of Consumer Voice, said: “We are ready to present our arguments and detailed evidence that will show why the FCA’s redress scheme, as designed, fails to deliver fair, adequate or lawful redress and systematically under-compensates millions of consumers.
“The FCA needs to engage with the legal process with the urgency that’s required, given consumers have been waiting for the regulator to act since 2019, and the three lender challengers should stop dragging their feet.
“The tribunal has now set the timetable so there are no more credible excuses for delay.
“Consumer Voice has always supported an industry-wide redress scheme. We are pleased that the Upper Tribunal has agreed with what we said when we announced our challenge in April – that lenders should proceed with the ‘back office’ process of identifying impacted motorists.”
Kavon Hussain, a director of Consumer Rights Solicitors, which acted for two of the claimants in the Supreme Court case that led to the scheme’s creation, contrasted the ever-increasing complexity of what the FCA was saying with its assurance to consumers “that this is simple and they can do this all for themselves.
He noted that while the overview of the scheme [3] on the FCA’s website includes one sentence “about the lenders’ conduct that created a multi-billion-pound mis-selling scandal”, yesterday’s notice had “a whole paragraph on cancelling with law firms or claims management companies (CMCs)”.
Mr Hussain added: “We fought the lenders to the Supreme Court and continue to fight in the lower courts on a daily basis. I think it very likely that the delays by the FCA and the less-than-perfect scheme will push a lot of claimants into the multi-party litigation route.”
The Court of Appeal ruled just this week [4] that “multi-claimant” or omnibus claim forms could be used for motor finance claims and that consumers did not have to file them separately,
Robert Whitehead, chairman of Barings Law, which acted for the claimants in the case, said the timing of the FCA’s announcement was significant.
“This week’s ruling, followed almost immediately by the FCA’s suspension, underlines how central the courts, and by extension law firms, have become in delivering real accountability for motor finance consumers…
“This week has made one thing clear: without law firms willing to pursue claims through the courts, millions of motorists would still be waiting for justice that the regulatory process has not delivered.”
James Walsh, managing director of Connectd Legal, said the FCA’s warning about using a law firm or CMC was “a funny thing to say about a scheme that has two possible hearing dates, a full contingency plan, deadlines with a load of exceptions bolted on, and a compensation date that could be 2027, 2028, or something else entirely”.
He went on: “For a scheme they keep calling ‘simple’, it’s anything but. I’d gently suggest that telling consumers not to get advice on something this messy tells you more about the FCA than it does about the advice.”
Jamie Patton, managing director of Johnson Law Group, added: “With every delay, consumers lose more trust in the institutions that are supposed to protect their interests.
“While this has not come as a huge surprise, it is extremely frustrating for those of us seeking a resolution to this case for claimants.”
Alison Walters, the FCA’s director of consumer finance, Nikki Stopford of Consumer Voice and Kavon Hussain will all be speaking at our Claims Futures conference [5] on 21 October in Manchester. Early bird tickets are now available.