The FCA motor finance redress scheme was designed with lender costs in mind rather than full consumer protection, a consumer rights group has alleged in new court filings. Consumer Voice, represented by solicitors Courmacs Legal, claims the Financial Conduct Authority (FCA) structured key parts of its compensation scheme in ways that will leave millions of drivers out of pocket.
The FCA is the UK’s financial regulator. Its motor finance scheme, formally established on 30 March 2026 under the Financial Services and Markets Act 2000, exists to compensate drivers who were mis-sold a car loan because commission was payable by the lender to the broker on their agreement. The scheme covers agreements taken out between 6 April 2007 and 1 November 2024.
What the FCA motor finance redress scheme offers drivers
Under the scheme, an estimated 12.1 million car finance agreements are eligible for redress, at an average payout of £829. The total cost of the scheme is put at £9.1 billion. Consumer Voice does not dispute that compensation should be paid; its argument is that the terms set by the FCA will leave consumers receiving less than they are owed.
Central to the legal challenge is the interest rate the FCA chose to apply to compensation payments. The watchdog set a minimum interest rate of 3%, calculated as the annual average Bank of England base rate plus 1%. Consumer Voice’s court filings allege that the FCA considered applying a higher rate of 8% above the base rate but rejected it because, as the filing states, it ‘would significantly increase total redress costs for firms’.
The filing argues that the FCA ‘made firm impact and operational simplicity the dominant consideration in its decision-making’. It adds that the regulator’s own data showed that unsecured personal loan rates exceeded 3% for almost the entire period covered by the scheme, and that many consumers, particularly those with weaker credit profiles, would have borrowed at materially higher rates. In practice, this means the interest attached to their compensation may be lower than the actual borrowing costs they incurred.
The FCA is also accused of knowingly setting the floor ‘below the actual borrowing costs of most consumers’.
Former FCA chief economist raised concerns before the scheme was finalised
The court documents cite concerns raised by Peter Andrews, who served as the FCA’s chief economist between 2013 and 2017 and sat on its cost benefit analysis panel before the final scheme was published. According to the filing, Andrews said: ‘The fact that one scheme may be cheaper than another does not seem to be an adequate basis for a decision to favour the cheaper scheme when the main objective of the scheme must be consumer protection.’
Consumer Voice says it has ‘no commercial interest in the outcome of this challenge’ and regards the legal action as being ‘in the interests of consumers who stand to lose billions in redress under the scheme as it presently stands’.
The FCA has previously attempted to have the Consumer Voice claim thrown out of court, alleging the group failed to explain how its legal case is being funded, the nature of its relationship with Courmacs Legal, and potential conflicts of interest.
Who else is challenging the FCA motor finance redress scheme?
Consumer Voice is not alone in contesting the scheme. According to the FCA’s own legal challenge documents, four parties are contesting the scheme’s lawfulness: Consumer Voice Limited, CA Auto Finance UK Limited, Mercedes-Benz Financial Services UK Limited, and Volkswagen Financial Services (UK) Limited. The financial services arms of Volkswagen and Mercedes-Benz, along with CA Auto Finance UK, are challenging the scheme on different grounds from Consumer Voice.
According to Stephenson Harwood, the Upper Tribunal (Tax and Chancery Chamber) is likely to begin hearing the consolidated legal challenges on either 14 December 2026 or 16 February 2027, with a judgment expected in the months that follow.
The FCA, for its part, is defending the scheme robustly. A spokeswoman said: ‘Our scheme is the quickest, fairest and most efficient way to put £7.5 billion back in consumers’ pockets and we are defending it robustly. It is unfortunate the challenges have delayed payouts for consumers that were due to begin this year, especially as household bills come under greater pressure. We will respond fully to these challenges in court.’
Payouts that were due to begin this year have been delayed as a direct result of the legal challenges. The regulator argues those delays, and the uncertainty surrounding them, are themselves harmful to consumers and the wider motor finance industry.
