The Financial Conduct Authority (FCA) is facing a legal challenge to its motor finance redress scheme, as both lenders and consumer groups criticize the plan. Consumer Voice, a group dedicated to helping consumers claim compensation, has announced it will apply to the upper tribunal for a review of the scheme, calling it "unprecedented."
Consumer Group Takes Legal Action
Consumer Voice argues that the FCA's scheme excludes the "vast majority" of complaints by misapplying the Supreme Court's ruling from August 2025. The highest court ruled in favor of banks on two out of three cases but left the door open for a redress scheme after finding one claimant's commission was outsized on grounds of "unfairness." The FCA's final rules reduced the number of qualifying agreements to 12.1 million from 14.2 million, lowering the headline bill for lenders from £11 billion to £9.1 billion. Despite fewer eligible claimants, the regulator expects an average payout of £830.
Alex Neill, co-founder of Consumer Voice, said: "We support a redress scheme being put in place, but as it stands millions of people will be under-compensated, and the lenders involved in this scandal won't be meaningfully held to account. The FCA has designed a scheme that leaves ordinary motorists hundreds of pounds per claim out of pocket. That cannot be left unchallenged."
Banks Also Oppose the Scheme
Major banks, including Lloyds, Close Brothers, and Santander, have also criticized the scheme. Lloyds, the UK's largest motor finance lender, has provisioned around £2 billion for potential payouts. Close Brothers has set aside nearly £400 million, and Santander £461 million. Lloyds stated it remains "disappointed" with the final scheme and "disagree with its conclusions," but it will not legally challenge it. The banks argue the FCA misinterpreted the Supreme Court judgment.
FCA Defends Its Plan
An FCA spokeswoman responded: "Our scheme is the quickest, fairest way to compensate consumers. It seems contradictory that organisations claiming to represent consumers would seek to delay payouts for millions of people." The motor finance scandal relates to secret commission deals between lenders and dealers that left consumers unaware of hidden costs, affecting millions of car buyers since 2024.
