FCA looking at “contingency planning” over redress scheme challenges

The Financial Conduct Authority (FCA) has confirmed it has received four legal challenges to its motor finance redress scheme, and warns that these are likely to delay implementation of its planned industry-wide approach.

In a statement, the FCA said legal action was underway from Consumer Voice (a limited company), represented by Courmacs Legal Ltd; and from three lenders – Volkswagen Financial Services, Mercedes Benz Financial Services, and Crédit Agricole Auto Finance.

It warns: “These legal challenges create fresh uncertainty for millions of consumers and for the second-largest consumer credit market, with £39bn 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.”

Currently the FCA redress scheme, which is divided into two elements, is set to have a short implementation period. This is up to 30 June 2026 for loans taken out from 1 April 2014, and up to 31 August 2026 for those agreed earlier.

The FCA has long argued that an industry-wide scheme is the fastest, simplest route for consumers and the most efficient way for firms to put things right and give certainty to their investors, and maintained that alternative approaches would be slower and much more costly for firms.

Barclays, Lloyds Bank, Santander, Close Brothers and the Finance & Leasing Association have all put out statements clarifying their decisions not to mount a legal challenge, despite reservations about the scheme details in some instances.

Challenges

In its comments on the decision of one consumer group and three captives to launch a legal challenge, the FCA stated: “We engaged widely in designing the scheme. While being clear not everyone would get everything they would like, we made changes to reflect feedback from both consumer groups and lenders. The final scheme is fair to consumers and proportionate for firms.

“We welcome the broad support for the scheme and the commitment from most lenders to implement it. They have taken a pragmatic approach, recognising that introducing a scheme on this scale promptly has required us to make judgements to simplify in a reasonable and lawful way some complex legal and operational issues.”

The regulator goes on to state: “We respect the right of any party that the Courts decide has standing to challenge the scheme. We also note that none of the claims received are expressly in the name of individual consumers.

“We will defend the scheme robustly as lawful and the best way to resolve such a widespread, long-running and complex issue.”

The FCA says it intends to provide further advice to firms next week.

Edward Peck, CEO of Finance Connect said: “Lenders’ reactions to the FCA redress scheme are united in their view that this is a deeply destructive act by the regulator which will damage the industry and ultimately consumers.

“Where they differ is how to minimise the impact. For captives, the solution is to mount a legal challenge; others have decided the least-worst option is to view the redress scheme as a means of achieving clarity and finality on this issue.”

Finance Connect’s UK Summer Conference on 4 June will have a full briefing on the latest developments surrounding the FCA redress scheme, including next steps for lenders and in-depth analysis from Wayne Gibbard, partner, Shoosmiths and legal adviser to Finance Connect.

Find out more about the Finance Connect UK Summer Conference here.