Four legal challenges are now hanging over the Financial Conduct Authority’s £9.1bn motor finance compensation scheme, threatening to derail the regulator’s hopes of drawing a line under the industry-wide mis-selling scandal. The FCA confirmed it is facing actions from the consumer group Consumer Voice and three lenders — Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance — each taking aim at the scheme from opposing directions.
Legal challenges mount from both sides
Consumer Voice, represented by Courmacs Legal, has applied to the Upper Tribunal for a review of the compensation programme, arguing that the FCA’s calculations “massively short-change victims”. The group contends the scheme is not fair, adequate or lawful, and was designed to limit lenders’ payouts rather than fully compensate consumers. Its own research suggests that typical payments may be lower than the headline average of £830 per loan, estimating around £569 for agreements before 2014 and £717 for those from April 2014 onwards. Consumer Voice also claims the FCA has unfairly capped interest on compensation and narrowed the scope of the scheme, limiting redress. This is the first time an FCA redress scheme has faced such a challenge.
The three lender challenges come from different quarters. Volkswagen Financial Services said it has “identified issues that require independent clarification” to ensure the scheme is applied “accurately and fairly”. Mercedes-Benz Financial Services, which has set aside £400m in provisions for the scandal, is also challenging the programme, alongside Crédit Agricole Auto Finance. The FCA noted that none of the legal claims received are expressly in the name of any individual consumers.
Not all major lenders are joining the fight. Lloyds Banking Group, Santander and Barclays have indicated they will not challenge the scheme.
FCA defends scheme as “fastest, simplest route”
In response to the legal actions, the FCA said it will “defend the scheme robustly as lawful and the best way to resolve such a widespread, long running and complex issue”. The regulator described the programme as the “fastest, simplest route for consumers and the most efficient way for firms to put things right”. It argued that alternative approaches “would be slower and much more costly for firms”.
The FCA issued the final terms of the £9.1bn compensation programme in March 2026. Approximately £7.5bn is allocated to payouts for borrowers, with the remaining £1.6bn covering administrative costs for banks and specialist lenders. The scheme covers regulated motor finance agreements entered into between 6 April 2007 and 1 November 2024 where commission was paid to a credit broker. It has been split into two parts: Scheme 1 for agreements from 2007 to 2014, and Scheme 2 for agreements from 2014 to 2024. Payouts will be capped in roughly one in three cases.
The regulator said it is “engaging at pace” with lenders and consumer groups to understand the views of all sides as it looks at next steps for the scheme, including “contingency planning”. It added: “We welcome the broad support for the scheme and the commitment from most lenders to implement it. The final scheme is fair to consumers and proportionate for firms.”
Potential delays and impact on payouts
The legal challenges create “fresh uncertainty for millions of consumers and for the second largest consumer credit market”, the FCA warned. The actions could mean taking the regulator to the Upper Tribunal, where a judge would be asked to review the merits of the compensation programme. That is expected to delay payouts to drivers, which were widely anticipated to begin as early as summer 2026. Martin Lewis has warned that delays could range from months to potentially a year.
The motor finance scandal, in which drivers were overcharged for loans as a result of commission payments between lenders and car dealers, dates back to 2007. Discretionary Commission Arrangements, which allowed brokers to adjust interest rates to earn higher commissions, were banned by the FCA in January 2021. The Supreme Court ruled on 1 August 2025 that while hidden commissions were not automatically unlawful, undisclosed commissions could lead to an “unfair relationship” under the Consumer Credit Act, prompting the FCA to consult on a redress scheme.
The eligibility criteria have been tightened since the initial proposals, reducing the number of eligible agreements from an estimated 14 million to 12.1 million. Some 4.7 million agreements are not covered. Consumer trust in the process remains low: only 22% of consumers trust lenders to follow FCA rules when calculating compensation.
Despite the legal obstacles, the FCA continues to advise consumers to complain directly to their lender if they believe they are owed compensation. The process is free, and consumers are warned against using claims management companies that may charge significant fees. The deadline for making a complaint is 31 August 2027.
The burden of the scheme falls heavily on carmakers’ finance arms. Carmakers collectively face approximately 42% of the total bill, some £3.8bn, yet have set aside only £897m in provisions, meaning they may need to find an additional £3bn to meet their share of payouts.
