The Financial Conduct Authority (FCA) said on Friday that a tribunal hearing over legal challenges to its compensation package for mis-sold car loans is unlikely to be held before October, and cautioned lenders that the entire scheme could potentially be abandoned.
The regulator's final scheme, unveiled earlier this year, aims to resolve a scandal stretching back 17 years and requires the UK motor finance industry to pay a total of a39.1 billion ($12.3 billion) in compensation. Four groups have launched legal challenges against the plan - among them Mercedes-Benz (ETR:MBGn) and Volkswagen (ETR:VOWG) - along with a consumer group.
Several other lenders, including Lloyds Banking Group (LON:LLOY), Barclays (LON:BARC) and the UK arm of Santander (BME:SAN), have accepted the FCA's revised scheme and have already set aside billions of pounds to meet potential compensation liabilities.
The FCA said it was engaging with the Tribunal and those who have challenged the scheme "on the possibility of suspending some elements of it while retaining those relating to preparatory work," and added that it would provide a further update shortly.
In guidance to the industry, the regulator also advised companies to plan "on a precautionary basis" for a tribunal decision around mid-November, highlighting the uncertainty for banks and finance providers involved in motor lending and for consumers awaiting redress.
The FCA's statement makes clear that, while work to prepare for potential payouts may continue, the legal process could delay or even terminate the compensation scheme as currently structured. The regulator did not provide a precise timetable beyond indicating that an early autumn hearing is unlikely.
For the motor finance sector and the banks involved, the outcome of the tribunal could determine whether the a39.1 billion package is implemented, modified, or abandoned, with implications for provisions already taken by firms that have accepted the plan.
Until the Tribunal and the FCA reach clarity on suspension and preparatory arrangements, affected lenders and consumers face continuing uncertainty over timing and the ultimate scope of compensation.