The UK’s financial watchdog has been given a clearer path for its £9.1 billion motor finance compensation scheme after the main industry body joined major lenders in backing out of any legal challenge.
The Finance and Leasing Association (FLA) said it had “concerns” about the programme but that it was choosing not to raise a challenge.
It follows major lenders including Santander, Barclays and Lloyds also accepting the Financial Conduct Authority’s (FCA) scheme despite raising concerns that the level of redress is disproportionate to those who suffered harm.
The FLA, which represents the UK’s motor finance firms, said it had considered how the regulator’s scheme would affect its members, their customers and the wider lending market given that it was “unprecedented in scale and scope, and the impact on the UK economy will be significant”.
“We continue to have concerns about aspects of the scheme, but our priority is that a practical solution be reached that ensures timely compensation for consumers while giving the motor finance industry and the wider market clarity and finality on this issue,” FLA chief executive Shanika Amarasekara said.
“For those reasons, we will not be challenging the FCA’s current scheme.”
Payouts are due on about 12.1 million mis-sold deals from an array of lenders at an average of £829 each, the financial watchdog said in March as it unveiled plans for its redress scheme.
The FCA expects the total amount of redress paid under its scheme to be about £7.5 billion, based on about 75% of eligible consumers making a claim.
Also taking into account the cost of running the scheme, such as dealing with the millions of complaints, the total bill rises to £9.1 billion.
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It thinks millions of claims will be paid out this year and the vast majority settled by the end of 2027.
It had been reported that the FLA was considering launching a legal battle against the watchdog, which set a deadline for legal challenges to be lodged by Monday.
But the decision to back out of any resistance leaves a clearer path for the scheme to be implemented and people to receive compensation.
Despite this, consumer group Consumer Voice said last week that it was preparing a legal challenge over concerns that the scheme in its current form could leave millions of consumers out of pocket by several hundred pounds per claim.