Mercedes and VW announcement 'fresh uncertainty' for UK drivers £829 payouts

The financial watchdog has cautioned that millions of drivers are facing "fresh uncertainty" over compensation. It is linked to the mis-selling of car loans, as it battles legal challenges to its £9.1 billion redress scheme. Three lenders and a consumer group have mounted legal challenges to the Financial Conduct Authority's (FCA) industry-wide compensation plan after its final details were unveiled in March. The financial services arms of carmakers Volkswagen and Mercedes-Benz, along with the car finance division of French bank Credit Agricole, are contesting the plans, which are expected to cost the industry around £9.1 billion. Meanwhile, Consumer Voice, a group acting on behalf of drivers, is also disputing the package, arguing it will leave motorists who were harmed when taking out a loan significantly out of pocket. The FCA confirmed it would fight to defend its scheme, describing it as "fair to consumers and proportionate for firms", and noted that none of the claims received is expressly in the name of individual consumers. The regulator said in a statement: "We will defend the scheme robustly as lawful and the best way to resolve such a widespread, long-running and complex issue. These legal challenges create fresh uncertainty for millions of consumers and for the second-largest consumer credit market, with £39 billion borrowed in 2024. "We are therefore engaging at pace with lenders and consumer groups to understand the breadth of views as we determine next steps for the scheme, including contingency planning." The legal challenges suggest potential setbacks to the protracted motor finance dispute. In March, the FCA had anticipated millions of claims would be settled this year, with the majority resolved by the end of 2027. Despite the uncertainty, the regulator continues to recommend that consumers lodge complaints directly with their lender if they believe they're entitled to compensation, which can be done free of charge using a template letter available on its website. "You do not need to use a law firm or claims management company, which may charge over 30% of any compensation," it urged. The FCA confirmed it would issue further guidance to firms next week, and also praised the "commitment" from lenders who took the "difficult decision" to implement its scheme. Industry body Finance and Leasing Association, along with major lenders including Lloyds, Barclays, Santander and Close Brothers, have opted not to contest the scheme.