The Financial Conduct Authority’s £9.1 billion motor finance redress scheme is facing renewed scrutiny after a consumer group alleged in court filings that the regulator placed the financial interests of lenders ahead of adequate compensation for borrowers.
Consumer Voice claims the FCA selected a compensatory interest rate that would reduce the industry’s overall liability despite evidence that the proposed figure was below the borrowing costs incurred by most affected consumers.
The allegations are the latest development in the legal challenges surrounding the scheme, which is intended to compensate motorists who were mis-sold car finance agreements between 2007 and 2024. The FCA estimates that approximately 12.1 million agreements could qualify for redress, with an average payment of £829.
Dispute over compensatory interest
Under the regulator’s framework, compensatory interest would be calculated using the annual average Bank of England base rate plus one percentage point, subject to a minimum rate of 3%.
Consumer Voice argues that this floor was knowingly set below the actual financing costs borne by most borrowers. Its court filing points to FCA data indicating that unsecured personal loan rates exceeded 3% for almost the entire period covered by the scheme.
The group maintains that the disparity would be particularly significant for consumers with weaker credit profiles, who are likely to have faced materially higher borrowing costs.
According to the documents, the FCA also considered an alternative rate of eight percentage points above the Bank of England base rate. Consumer Voice claims that the regulator rejected this option partly because it would have increased the total cost of redress for lenders, raised the likelihood of an industry challenge, and affected the wider market.
The filing alleges that the financial impact on firms and the operational simplicity of the programme became dominant factors in the FCA’s decision-making. It also claims that the desire to finalise the scheme quickly influenced the regulator’s choice of methodology.
Former FCA economist raised concerns
Consumer Voice further cites concerns attributed to Peter Andrews, the FCA’s chief economist between 2013 and 2017 and a former member of its cost-benefit analysis panel.
Andrews reportedly questioned whether it was right to choose a compensation model simply because it was cheaper, arguing that protecting consumers should be the scheme’s main priority.
Legal challenge could delay payments
The FCA has said it will defend the redress framework, which it considers the most effective way to resolve the long-running motor finance dispute. The regulator maintains that its approach is fair to consumers while remaining proportionate for the firms required to fund compensation.
It has also warned that the legal challenges are prolonging uncertainty for both motorists and the motor finance industry. Payments that had been expected to begin this year could now face significant delays.
When could motorists receive compensation?
The Upper Tribunal is expected to hear the legal challenges either from 14 to 18 December 2026 or from 16 to 26 February 2027, with a judgment expected in the following months. Until the legal process concludes, lenders are not required to calculate or pay compensation.
If the framework is upheld and the judgment is not appealed, the FCA expects payments to begin in 2027. If it is overturned and a revised scheme is required, compensation could be delayed until 2028 or beyond.
What motorists can do now
Despite the uncertainty over payment dates, motorists do not need to wait for the court’s decision before checking whether they may be affected. Those who entered into a car finance agreement between 2007 and 2024 can use our eligibility checker for an initial assessment.
The result does not guarantee compensation, but can help motorists understand whether their agreement may fall within the scheme and what steps they could take next.
