Millions of UK drivers who may be entitled to compensation for mis-sold car finance could face a longer wait for their payouts, with payments now unlikely to begin before 2027.
The Financial Conduct Authority (FCA) has warned that legal challenges against its proposed £7.5 billion compensation scheme are causing delays and increasing costs. Speaking to MPs, FCA Deputy Chief Executive Sarah Pritchard said the regulator wants to be transparent about the impact of these legal disputes.
The scheme is designed to cover around 12.1 million car finance agreements dating back to 2007. Drivers who were affected by mis-selling could receive an average payout of around £830.
However, several companies, including Mercedes-Benz and Volkswagen, have launched legal challenges against the plans. FCA Chief Executive Nikhil Rathi warned that these challenges could potentially affect the scheme or even prevent parts of it from going ahead.
The delay is a significant change from the FCA's earlier expectation that millions of motorists would start receiving compensation this year.
The FCA also raised concerns about claims management companies (CMCs) and law firms trying to profit from the situation. Since the regulator began reviewing motor finance deals, many firms have aggressively marketed no-win, no-fee services to drivers. Some are charging fees of up to 40% of any compensation awarded.
Mr Rathi said the FCA has seen cases where consumers have been harmed by misleading practices, including unwanted marketing messages and people being signed up to claims services without proper consent. In some cases, drivers have been registered with multiple claims firms, which could reduce the amount of compensation they ultimately receive.
The regulator has already removed more than 800 misleading advertisements, required several firms to reduce their fees, and stopped others from taking on new customers.
Earlier this year, the FCA also launched an investigation into the Claims Protection Agency (TCPA), a company that advertised motor finance claims using heavyweight boxer Tyson Fury. The FCA said it had concerns about the company's advertising and sales practices, although TCPA says it has fully cooperated and believes the investigation will clear its name.
The FCA is now urging the Government and Parliament to take further action to tackle poor practices in the claims industry and better protect consumers.
Comment
While the car finance compensation scheme could eventually return billions of pounds to affected drivers, ongoing legal challenges have created significant uncertainty around when payments will be made. With payouts now unlikely before 2027, motorists who may be eligible for compensation should prepare for a longer wait as the legal process continues to unfold.
Here at Box Legal, we can arrange After the Event Insurance for financial mis-selling claims. If you're representing claimants in car finance claims, do get in touch to find out more about our Claimsafe After the Event Insurance.
If you would like to speak to us or obtain further information, then please call 0870 766 9997, or email info@boxlegal.co.uk.
