The City watchdog has confirmed that the legal battle over its motor finance redress scheme will take place early next year following widespread backlash against its multi-billion-pound programme.
The Financial Conduct Authority (FCA) will face challenges from three lenders, Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance, as well as the advocacy group Consumer Voice, at the Upper Tribunal.
The court will hear the legal challenges between 16 and 26 February 2027.
It follows the regulator’s suspension of its redress scheme in July after backlash. The FCA published its finalised proposals at the end of March, where lenders were put on the hook for £9.1bn, lower than previously expected, after the number of qualifying agreements was reduced to 12.1m from 14.2m.
The Supreme Court partially overturning a landmark ruling on car finance deals last year, rejecting claims that hidden commissions were automatically unlawful. It found one customer’s undisclosed commission created an “unfair relationship”, leaving the door open for an industry-wide redress scheme by the FCA.
But captive lenders, the financial arms of manufacturers, have argued it forced an unlawful blanket assumption that most customers suffered a financial loss if their commissions were not clearly disclosed.
Volkswagen Financial Services UK (VWFS) set aside £725m for expected expenses under car finance redress scheme, according to new accounts filed last week.
VWFS said its provision was based on the criteria set out in the Financial Conduct Authority’s (FCA) policy statement, but added the rules “do not reflect the specific elements of, or provide sufficient clarity on, how the scheme applies to a captive finance provider”.
City AM revealed last week that lenders accused the FCA of using complex economic modelling to justify the scheme. They have also blasted the watchdog for refusing to share the data and code with affected firms or the Upper Tribunal.
Meanwhile, Consumer Voice has accused the Treasury of having unprecedented influence over the scheme and called for full disclosure in the regulator’s communications with the government.
During her stint as Chancellor, Rachel Reeves sought to intervene in last year’s motor finance battle at the Supreme Court over concerns it would harm the sector but was blocked by justices.