Consumer group challenges UK’s £9.1 billion car finance compensation scheme

Consumer Voice has taken the UK’s £9.1 billion car finance redress scheme to London’s Upper Tribunal, arguing the plan underpays motorists who were mis-sold loans and turns compensation into a cap on lender liability. The challenge, filed on Monday, April 27, adds fresh uncertainty to a process regulators had hoped would settle one of the UK financial sector’s biggest consumer disputes without years of courtroom battle.

The group says the scheme is not fair, adequate or lawful and systematically undercompensates consumers. Its case goes to the heart of how much money should be returned to borrowers and who should bear the cost after mis-selling allegations hit the motor finance market. Reuters reported that Consumer Voice believes redress has been minimized to protect lenders, rather than set at a level that properly restores losses to customers.

The Financial Conduct Authority had unveiled a trimmed-down final bill last month after pushback from lenders, following a top-court ruling that upended a landmark decision and sent shockwaves through the industry. Close Brothers and Santander chose not to challenge the FCA’s scheme, which the regulator said was designed to allow consumers to receive compensation quickly. That speed is now in doubt, with Consumer Voice arguing that a rushed framework cannot deliver lawful redress.

The FCA said the legal challenge could delay compensation for consumers and prolong uncertainty for everyone involved, a result it said would not be good for investment or for a healthy motor finance market. The regulator also said it was considering its approach and would give more detail later in the week. Those positions highlight the central fight in the case: whether the scheme is a consumer remedy designed to make borrowers whole, or a practical ceiling on banks’ exposure after a damaging legal setback.

The stakes extend beyond car finance. If Consumer Voice succeeds, the timetable for payouts could slip and the final bill could become harder to pin down again after months of effort to stabilize expectations. If the challenge fails, the FCA’s attempt to impose a faster, more orderly compensation process will be strengthened. Either way, the case could shape how regulators handle mass consumer redress when large lenders, complex loan products and claims of widespread mis-selling collide.