The Financial Conduct Authority (FCA) has accused motor finance lenders difficult its compensation scheme of advancing an “absurd” interpretation of the law that will allow firms to come to a decision for themselves whether customers are entitled to redress.
In its Grounds of Response filed with the Upper Tribunal, the regulator rejected legal challenges brought by Volkswagen Financial Services, Mercedes-Benz Financial Services UK, CA Auto Finance UK and Consumer Voice against its industry-wide motor finance consumer redress scheme.
The FCA argued that Parliament had given it, slightly than lenders, the authority to find out how the scheme should operate.
The legal dispute centres on the FCA’s industry-wide consumer redress scheme, introduced in March to compensate motorists who were treated unfairly under historic motor finance commission arrangements between 2007 and 2024.
The regulator estimates the scheme will return around £7.5 billion to consumers, with total implementation costs of about £9.1bn for the industry.
The challenges have already delayed the FCA’s plans to start compensation this yr.
Earlier this month, the Upper Tribunal agreed to partially suspend the scheme while the legal motion is heard, meaning lenders can proceed preparing for implementation but should not required to calculate or pay compensation until the case is resolved.
The FCA has said payments at the moment are unlikely to start before 2027 and warned they might slip to 2028 or later if the scheme must be redesigned following a successful challenge
Foxes guarding the henhouse
The regulators submission said: “The FCA makes the principles, and the firms should follow them.
“Nothing within the statutory language indicates an intention of Parliament to let the foxes guard the henhouse.”
The regulator was responding to arguments from lenders over the scope of its powers to require firms to evaluate consumer harm and calculate compensation under the redress scheme.
Rejecting those arguments, the FCA said: “That interpretation is absurd.
“It will denude the FCA’s rule-making powers and indeed the entire consumer redress scheme mechanism of any substance.”
“Firms would sit because the judge of their very own case, free to come to a decision for themselves whether their conduct amounted to wrongdoing, whether it caused harm, whether or not they should make redress and, if that’s the case, of what kind and to what extent.”
Volkswagen Financial Services, Mercedes-Benz Financial Services UK and CA Auto Finance are difficult various elements of the scheme, including the FCA’s powers to introduce it, its approach to determining liability, causation, redress and limitation.
The Upper Tribunal has partially suspended elements of the scheme while the legal challenges are heard.
Under the agreed timetable, hearings are expected to happen in December 2026 or February 2027, with firms continuing preparatory work while compensation calculations and payments remain on hold.
The FCA has said it’s going to proceed to defend the scheme as “the quickest, fairest and most cost-effective” way of compensating consumers.
This Article First Appeared At www.am-online.com
