A consumer advocacy group is mounting a legal challenge against a regulatory compensation scheme designed to repay millions of drivers who were mis-sold car finance agreements, potentially delaying payouts that were expected to begin this summer.
Consumer Voice announced plans to contest the Financial Conduct Authority's (FCA) compensation framework, arguing it fails to adequately compensate all affected consumers. The scheme, which could cost lenders approximately £9.1 billion, was set to provide average payments of £829 per person to those who were overcharged through hidden commission arrangements.
Alex Neill, co-founder of Consumer Voice, stated: "Millions of drivers were overcharged through undisclosed and unfair commission practices. The FCA's current scheme risks short-changing many people by hundreds of pounds they are rightfully owed. Consumers were already let down by lenders; they shouldn't face disappointment from the regulator meant to protect them."
The group contends that while 12.1 million finance agreements will be covered under the FCA's plan, approximately 4.7 million mis-sold agreements will be excluded entirely. They argue the regulator has adopted too narrow an approach to calculating financial losses.
In response, an FCA spokeswoman defended the scheme: "Our framework represents the quickest and fairest method to compensate consumers. It seems contradictory that organizations claiming to represent consumer interests would seek to delay payments for millions of people."
Consumer Voice, working alongside legal firm Courmacs—which represents over a million drivers pursuing claims through courts rather than the FCA scheme—plans to file paperwork with the Upper Tribunal on Friday. The application will request judicial review of how compensation calculations were designed within the scheme.
Neill emphasized that their goal isn't to halt compensation entirely: "The scheme should proceed while the Tribunal urgently examines the rules governing redress. Our objective is to correct flaws, not prevent compensation from reaching people."
The legal challenge emerges against a backdrop of regulatory action dating to 2021, when the FCA banned discretionary commission arrangements (DCAs). These arrangements allowed car dealers to receive commissions from lenders based on the interest rates charged to customers—often without disclosure—creating incentives to charge higher rates than necessary.
Legal experts offered mixed perspectives on the challenge. Kevin Durkin of HD Law, who represented a client in a related Supreme Court case, commented: "The current scheme doesn't prioritize public needs. While judicial review might cause temporary delays, it could ultimately deliver fairer outcomes for consumers. We hope any short-term inconvenience results in greater financial justice long-term."
However, not all consumer advocates support the legal action. James Daley, managing director of Fairer Finance, cautioned: "Pursuing this through courts again to potentially increase payouts will only delay compensation when many households urgently need the funds. While the outcome might benefit consumers, there's no guarantee."
The FCA declined to confirm whether it has received notice of other potential legal challenges. The deadline for any challenges to the compensation scheme is Monday, with speculation that lenders or other affected parties might also contest the framework.
"People have already been let down once by lenders. They should not now be let down again by the regulator that is supposed to protect them."
"Our scheme is the quickest, fairest way to compensate consumers. It seems contradictory that organizations claiming to represent consumers would seek to delay payouts for millions of people."
The dispute highlights tensions between expediency and comprehensive redress in one of the UK's largest consumer compensation initiatives, leaving millions of drivers uncertain about when—and how much—compensation they will ultimately receive.