Monday update for drivers sees dates set for £829 payments | Personal Finance | Finance

The UK’s financial regulator has been handed a smoother route for its £9.1 billion motor finance compensation programme after the principal industry body followed major lenders in deciding against mounting any legal challenge. The Finance and Leasing Association (FLA) stated it had “concerns” about the scheme, but that it was opting not to pursue a challenge.

This comes after major lenders including Santander, Barclays and Lloyds also accepted the Financial Conduct Authority’s (FCA) scheme despite voicing concerns that the level of redress is disproportionate to those who experienced harm. The FLA, which represents the UK’s motor finance companies, said it had examined how the regulator’s scheme would impact its members, their customers and the broader 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.”

Compensation is expected on approximately 12.1 million mis-sold agreements from a range of lenders at an average of £829 each, the financial regulator announced in March when it revealed plans for its redress scheme. The FCA anticipates the total sum of redress paid under its scheme to reach approximately £7.5 billion, based on around 75% of eligible consumers submitting a claim.

When factoring in the operational costs of running the scheme, such as processing the millions of complaints expected, the overall bill climbs to £9.1 billion. The regulator expects millions of claims to be settled this year, with the vast majority resolved by the end of 2027.

It had previously been reported that the FLA was contemplating launching a legal challenge against the watchdog, which had set a deadline for any such challenges to be lodged by Monday.

However, the decision to withdraw from any opposition paves the way for the scheme to be implemented and for consumers to receive their compensation. Major lenders have also opted to draw a line under the saga and accept the FCA’s compensation scheme.

Santander said on Saturday that while the bank had a “disagreement” with parts of the scheme, this was outweighed by a “desire to bring greater certainty to our customers, shareholders and the wider motor finance sector”.

Barclays confirmed that it was not challenging the plans “because we want a swift resolution for consumers” but issued a stark warning over its longer-term impact for the UK.

A spokesman said: “However, we disagree strongly with aspects which require financial redress even where customers suffered no demonstrable financial harm.

“This regulatory overreach will, in time, reduce the availability and increase the cost of consumer credit, hurt retail sales and damage consumption and growth in the UK. Barclays exited the motor finance market in 2019 and has no plans to re-enter it.”

Lloyds, which operates in the car finance market through its brand Black Horse, has also chosen not to pursue a challenge despite setting aside almost £2 billion to compensate customers.

Despite this development, consumer group Consumer Voice announced last week that it was preparing its own legal challenge, amid concerns that the scheme in its current form could leave millions of consumers out of pocket by several hundred pounds per claim.

Gary Greenwood, an equity analyst for Shore Capital Markets, said that while lenders had disagreements with how the compensation scheme had been worked out, “none appear willing to pursue a formal legal challenge”. “That contrasts with the position of consumer representatives,” he said, referring to Consumer Voice’s plans to take legal action.

“Such a challenge could delay the implementation of the scheme and/or the timing of compensation payments for affected customers. Whether it ultimately proves strong enough to overturn the scheme remains to be seen; however, were it to do so, lenders could be required to revisit their redress assumptions and associated provision estimates.”