The financial services arms of Volkswagen and Mercedes-Benz, the car finance division of French bank Crédit Agricole, and the consumer group Consumer Voice have launched legal challenges to quash the Financial Conduct Authority’s (FCA) proposed redress scheme for mis-sold car finance, arguing the rules are unlawful. The FCA has warned that the legal battles could delay payouts until at least 2027, upending initial plans to begin compensating affected motorists in 2026.
The challengers and their positions
Four separate legal challenges have been lodged against the FCA’s motor finance redress scheme. The challengers are Volkswagen Financial Services (VWFS), Mercedes-Benz Financial Services, Crédit Agricole Auto Finance (CA Auto Finance), and Consumer Voice. VWFS has said it has “identified issues that require independent clarification” from the courts, while CA Auto Finance has referred the scheme to the Upper Tribunal for an independent review. Consumer Voice, which represents consumers, has applied to the Upper Tribunal to have the scheme reviewed, arguing it “fails to deliver fair, adequate or lawful consumer redress and systematically under-compensates consumers.” The FCA has noted that the challenges effectively claim the scheme is “both unduly favourable to consumers and unduly favourable to lenders.”
Why the scheme’s rules are deemed unlawful
Consumer Voice is seeking to alter how compensation is calculated, warning that the current design could leave consumers hundreds of pounds out of pocket per claim. The group believes the scope of the scheme is too narrow, some consumers could be left out entirely, and the compensation level may not fully reflect the losses suffered under discretionary commission arrangements (DCAs), often called “hidden commission.” DCAs, which the FCA banned in January 2021, allowed brokers to set interest rates on car loans, creating an incentive to charge higher rates for larger commissions. The redress scheme was designed to compensate an estimated 12.1 million eligible car finance agreements, with an average payout of £829 per agreement and a total projected industry cost of £9.1 billion. Consumer Voice argues that these calculations systematically under-compensate consumers, and that the rules governing eligibility and payout amounts are unlawful.
VWFS, Mercedes-Benz Financial Services, and CA Auto Finance have also challenged the legality of the scheme, though their precise objections vary. The FCA has indicated that the challenges collectively argue the scheme is unlawful on grounds that range from being too generous to consumers to being too favourable to lenders. The FCA has spent over £20 million developing the scheme, with an estimated £2.7 million in additional costs incurred as a result of the legal challenges. The hearings are unlikely to begin before October 2026, and the FCA deputy chief stated on June 9 that payouts are likely delayed until at least 2027.
Potential consequences of the delays
If the scheme is allowed to proceed despite the legal challenges, compensation is not expected before 2027, with the FCA aiming to distribute the majority by the end of that year. However, Nikhil Rathi, the FCA Chief Executive, has warned that if the scheme is “struck down in whole or part,” the regulator may need to switch to a “complaints-led approach” for resolving individual claims. That alternative is estimated to cost lenders £6 billion more and take an additional three years. Without a scheme, the FCA estimates up to 19 million complaints would need to be handled individually. The FCA has already split the redress scheme into two parts to mitigate the risk of legal challenges to the earlier period covering 2007 to 2014.
Consumer guidance and warnings
The FCA has advised consumers who believe they were mis-sold car finance to complain directly to their lender. They do not need to use a claims management company (CMC) or law firm, which can charge fees of more than 30% of compensation. It is crucial for affected individuals to register complaints, even if they have done so before, as rules have changed and outcomes could differ. For those who have already complained, no further action is required unless contacted by their lender. The FCA has issued warnings about misleading advertisements from CMCs and law firms, some of which have misused logos and branding or even edited clips of public figures such as Martin Lewis. The FCA has been actively tackling poor practices by CMCs through a joint task force with other regulators.
Background on the companies involved
Volkswagen Financial Services has a dedicated customer resolutions department and provides contact details for complaints via post, email, and phone. It acknowledges a significant increase in complaints related to motor finance commissions and states that the FCA has paused the usual eight-week deadline for issuing final responses on these types of complaints. Mercedes-Benz Financial Services has provided specific email addresses and phone numbers for commission-related queries and complaints, and has stated that lease agreements are not part of the redress scheme. Crédit Agricole Auto Finance, formerly linked with Crédit Agricole, operates in the UK offering various finance products. Recent reports have suggested concerns about its complaint handling, including the potential use of AI-generated correspondence and mishandling of fraud victim complaints.
Consumer Voice is actively campaigning for fairer compensation and has taken legal action to challenge the FCA’s scheme. The Finance & Leasing Association (FLA) decided not to challenge the scheme on April 26. The FCA confirmed on March 30 the final version of the scheme, with payouts initially expected later that year. The deadline for firms to respond to commission-related complaints has been updated to between July 1 and September 30, 2026, or November 30, depending on the agreement start date.
