FCA says lenders want to let 'foxes guard the henhouse' on car finance

The Financial Conduct Authority is defending its £9.1bn motor finance redress scheme in the Upper Tribunal in London, arguing that lenders challenging the plan are trying to influence the size of their own liability.

In legal filings released on Wednesday, July 8, the regulator said the lenders’ arguments were “absurd” and accused them of trying to let “the foxes guard the henhouse.” The case is now one of the most important consumer redress disputes facing the UK financial sector.

The scheme is designed to compensate motorists who took out car loans between 2007 and 2024 and were affected by hidden commissions paid to dealerships. The FCA says the programme covers more than 12 million agreements and is intended to provide a faster industry-wide remedy than forcing consumers into individual complaints.

The FCA’s defence

The regulator has framed the redress plan as a practical response to a widespread problem in motor finance. Of the £9.1bn total, about £7.5bn is expected to go to consumers, with roughly £1.6bn set aside for administration.

The FCA has also warned that if the scheme is scrapped, lenders could face about £6bn in additional costs and the legal fight could drag on for years. That is central to its argument that a single compensation process is better than a slower, case-by-case approach.

The tribunal dispute follows an earlier decision on July 2, when the Upper Tribunal ordered a partial suspension of the scheme. That pause delayed part of the compensation process while legal challenges are heard.

The lenders’ challenge

Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance are among the lenders challenging the FCA’s approach. Their argument is that the regulator has gone too far by assuming harm too broadly and should instead assess claims more narrowly.

That challenge goes to the heart of the FCA’s authority to run an industry-wide compensation programme. If the tribunal narrows or overturns the scheme, payouts could become more fragmented and consumers may wait even longer for redress.

The underlying scandal centers on commissions paid by lenders to dealers that were not properly disclosed to borrowers in many cases. The FCA introduced the compensation approach after the wider motor finance mis-selling scandal and presented it as a faster alternative to the old complaints-led system.

A challenge from the other side

The lenders are not the only parties attacking the scheme. Consumer Voice is also challenging it, but from the opposite direction, saying the FCA’s plan undercompensates victims by about £4.6bn.

That makes the tribunal fight unusual: one set of challengers wants the scheme reduced or abandoned, while the other wants it expanded. The FCA has questioned whether Consumer Voice is a genuine consumer organisation and suggested it may have commercial incentives.

The regulator’s criticism of Consumer Voice mirrors its broader attempt to defend the structure of the redress scheme from both legal and political pressure. The FCA says the proposed process is meant to be efficient and fair across millions of affected borrowers.

What happens next

Court hearings are expected in late 2026 or early 2027, and consumer payments are now delayed until at least that process is resolved. For motorists waiting for compensation, that means the timetable has moved further out even after the FCA set out the scheme.

The outcome will matter for both consumers and lenders. If the FCA’s framework survives, the regulator can keep pushing for a broad industry-wide process. If it does not, the redress system may need to be rewritten, delayed again or replaced by more fragmented litigation.

For now, the FCA is trying to preserve its £9.1bn scheme, lenders are trying to cut it back, and Consumer Voice is trying to push the compensation higher. The tribunal will determine how much authority the regulator has to decide what fair redress looks like in one of the UK’s biggest consumer finance scandals.