Committee publication · Correspondence · 9 June 2026
Correspondence from the Chief Executive of the FCA to the Chair of the Treasury Committee on Motor Finance Compensation Scheme, dated 8 June 2026
From: Treasury Committee
Summary
FCA Chief Executive Nikhil Rathi responds to Treasury Committee queries on the motor finance compensation scheme, following four legal challenges filed in April 2026. The letter defends the scheme's design and fairness, outlines implications of the delays (payments now unlikely before 2027), details consumer advice and fraud risks, and addresses wider systemic issues in claims management. The FCA has spent £20.5m on scheme design; legal defence will cost approximately £2.7m more.
Key findings
- Four commercial parties challenged the scheme on 27 April 2026: Volkswagen Financial Services UK, Mercedes-Benz Financial Services (UK), Crédit Agricole Auto Finance, and Consumer Voice (via Courmacs Legal Ltd). No UK or international banks challenged except CAAF (EU-owned).
- Around 12 million motor finance agreements are eligible for compensation. Scheme payments scheduled for 2026 will now delay until 2027 at earliest; if scheme is struck down, resolution could extend to 2027–2028.
- FCA has spent £20.5m from January 2024 to March 2026 (£11.4m internal, £9.1m external); legal challenges will add ~£2.7m more. Over 80 FCA staff currently engaged on motor finance work.
- Claims management sector shows systemic misconduct: 1.3 million consumers signed to multiple representatives (April 2026 survey of 13 lenders); 6 million ICO complaints on nuisance marketing; cases of forged signatures, misled consumers, and inflated claims. FCA has removed/amended over 1,000 misleading adverts since January 2024.
- If scheme fails, FCA estimates complaints-based approach would cost lenders over £6bn more and take three years; up to 19 million complaints would require FOS handling (vs 300,000 cases FOS received total last year).
Tone
FactualTopics
Key actors
Nikhil Rathi (FCA Chief Executive), Dame Meg Hillier MP (Treasury Committee Chair), Volkswagen Financial Services UK, Mercedes-Benz Financial Services (UK), Crédit Agricole Auto Finance, Courmacs Legal Ltd / Consumer Voice, Financial Ombudsman Service, Solicitors Regulation Authority
Notable line
“It is unprecedented for complaints to have been paused for over two years, since 11 January 2024, and any payouts are now increasingly unlikely before”
Key Quotes
“Around 12 million agreements are due compensation. There has been broad support for a scheme because it is the quickest, fairest and most efficient way to deliver compensation.”
“… these liabilities, going back to 2007, exist whatever route is taken to pay compensation. We are ready to use any of our powers to ensure they are met.”
“… we have seen serious and unacceptable harm by many claims management companies (CMCs), law firms and their commercial partners and associates.”
“Many in the claims management and legal industry, driven by the prospect of a share of any payouts, have engaged in wide-ranging misconduct themselves, extending and amplifying the harm caused to millions of consumers.”
“We estimate it would cost lenders over £6bn more and take three years to resolve claims through a complaints-led approach.”
“When large-scale consumer harm is identified, the system must deliver redress faster, more clearly and with less friction. In cases like motor finance, pace and certainty are not in tension with consumer protection, growth and competitiveness.”
Source · parliament.uk record ↗