The UK’s financial watchdog has been given a clearer path for its £9.1 billion motor finance compensation scheme after the main industry body joined major lenders in backing out of any legal challenge.
The Finance and Leasing Association (FLA) said it had “concerns” about the programme but that it was choosing not to raise a challenge.
It follows major lenders including Santander, Barclays and Lloyds also accepting the Financial Conduct Authority’s (FCA) scheme despite raising concerns that the level of redress is disproportionate to those who suffered harm.
The FLA, which represents the UK’s motor finance firms, said it had considered how the regulator’s scheme would affect its members, their customers and the wider 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.”
Payouts are due on about 12.1 million mis-sold deals from an array of lenders at an average of £829 each, the financial watchdog said in March as it unveiled plans for its redress scheme.
The FCA expects the total amount of redress paid under its scheme to be about £7.5 billion, based on about 75% of eligible consumers making a claim.
Also taking into account the cost of running the scheme, such as dealing with the millions of complaints, the total bill rises to £9.1 billion.
It thinks millions of claims will be paid out this year and the vast majority settled by the end of 2027.
It had been reported that the FLA was considering launching a legal battle against the watchdog, which set a deadline for legal challenges to be lodged by Monday.
But the decision to back out of any resistance leaves a clearer path for the scheme to be implemented and people to receive compensation.
Major lenders have also opted to draw a line under the saga and accept the FCA’s compensation scheme.
💰 Complain now to get money back first.
— Consumer Voice UK (@groupaction) April 20, 2026
Millions of drivers could be owed money back for hidden commission on car finance taken out between 2007 and 2024. Many people will miss out if they don't check.
👇 Start your complainthttps://t.co/pLLAyID9Ou#CarFinance #Compensation pic.twitter.com/w9WesPqjRp
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.
On the other hand, the FCA is set to face resistance from consumer group Consumer Voice which said last week that it was preparing a legal challenge over 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.”
