Drivers warned car finance scandal payouts could be delayed until 2027 amid legal challenges

Millions of drivers waiting for compensation over mis-sold car finance could now face delays until 2027, according to the UK's financial watchdog.

The Financial Conduct Authority (FCA) has warned that legal challenges against its compensation scheme mean payments are unlikely to begin next year as originally planned.

In a letter to Treasury Committee chair Dame Meg Hillier, FCA Chief Executive Nikhil Rathi said tribunal hearings linked to the legal challenges are not expected before October 2026.

As a result, compensation payments would not begin until 2027 at the earliest, after consumer complaints about motor finance were put on hold in January 2024 while the FCA worked on plans for a large-scale compensation scheme.

The regulator had previously revealed plans to compensate customers who were unfairly charged through hidden commission arrangements when taking out car finance agreements.

The FCA estimates around 12 million finance agreements dating back to 2007 could be affected, with about £7.5billion expected to be returned to consumers.

However, four organisations have launched legal action against the watchdog's plans, including Volkswagen Financial Services UK, Mercedes-Benz Financial Services (UK), Crédit Agricole Auto Finance, and Consumer Voice, a company represented by Courmacs Legal Ltd.

Alex Neill, co-founder of Consumer Voice, said: "Millions of drivers were overcharged through hidden and unfair commission, yet the FCA's scheme risks leaving many of them missing out on hundreds of pounds they're owed.

"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. The FCA needs to fix the scheme to ensure it delivers fair and lawful compensation for drivers."

The FCA defended its proposals, saying the programme is the quickest and most effective way to deal with such a large number of claims.

Originally, millions of complaints were expected to be resolved this year, with most cases completed by the end of 2027. But the latest legal action means consumers face a much longer wait for certainty.

The National Franchised Dealers Association expressed disappointment at the latest setback and delays for drivers being fairly compensated.

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Chief Executive Sue Robinson said: "It is disappointing that the process continues to face delays. Consumers and businesses alike have been waiting a long time for certainty, and it is important that a fair and proportionate outcome is reached as quickly as possible."

The FCA expects defending the legal challenges to cost an additional £2.7million, although it says the figure could change.

More than 80 FCA staff are currently working on motor finance issues, including responding to the court cases.

If the tribunal rejects all or part of the compensation scheme, the watchdog may need to consider alternative options, such as a revised consultation or returning to a traditional complaints-based process.

The FCA warned that if this happens, consumers may not receive compensation until late 2027 or even early 2028.

It estimates that handling claims individually instead of through a central compensation scheme would cost lenders more than £6billion extra and could take three years to complete.

The watchdog has also urged consumers not to pay claims management companies or solicitors to pursue compensation, stressing that any FCA-backed scheme will be free to use.

People who have already lodged complaints do not need to take any further action, while those who have not yet complained can contact their lender directly at no cost.