FCA’s prepares for compensation scheme legal challenge

The Financial Conduct Authority (FCA) is preparing for potential legal challenges regarding the motor finance scheme. It has received four legal challenges from lenders, including Volkswagen Financial Services and Mercedes-Benz Financial Services.

The FCA says that its priorities remain to secure fair compensation for consumers as quickly as possible and ensure a healthy motor finance market.

Lenders are also concerned about the conduct of claims management companies (CMCs).

Richard Pinch, Senior Risk Director at Broadstone, said “While the legal challenges add another layer of complexity and uncertainty to an already highly charged issue, the FCA is clearly signalling that firms cannot afford to stand still. Lenders are being told to continue operational preparations and contingency planning now, regardless of the outcome of the court proceedings which the FCA does not expect to be before October this year.

“The regulator also appears increasingly focused on avoiding further delays for consumers, many of whom have been waiting years for clarity. If the scheme were ultimately quashed, firms would need to be ready for a potentially significant wave of complaint-led redress activity under normal DISP timelines, which could create separate but substantial operational and financial pressure across the market.

“This update underlines the importance of robust data gathering, complaint handling readiness and proactive engagement as firms must prepare for multiple possible outcomes.”