Payouts on car finance compensation scheme paused | Personal Finance | Finance

The UK’s financial watchdog has been forced to pause payouts on its £9.1 billion car finance redress scheme, meaning millions of motorists are facing further delays to compensation.

The Financial Conduct Authority (FCA) is facing legal challenges from four companies who are not happy with its plans to compensate people mis-sold a car loan.

Payouts were meant to start this year but are now facing significant delays.

The UK’s Upper Tribunal has agreed to hear the legal challenges in December or February next year, with a judgment expected in the following months.

The financial services arms of carmakers Volkswagen and Mercedes-Benz and the car finance arm of French bank Credit Agricole, as well as Consumer Voice – a group representing consumers, are asking the courts to quash the scheme, arguing the rules are unlawful.

The FCA said the tribunal had ordered that parts of its motor finance scheme were suspended on terms agreed with the four parties involved.

The pause means that lenders will no longer need to calculate or pay compensation to people owed money, nor tell customers about compensation they are owed, until the legal process concludes.

This puts the brakes on the process of paying out an estimated 12.1 million car finance agreements that are eligible for redress, at an average of £829 per payout, under the FCA’s plans.