Millions of drivers were in line to receive compensation this year, and most of the remainder should have got compensation by the end of 2027.
But the FCA has confirmed that no compensation will be paid before 2027 as a result of legal challenges to the scheme.
Consumer Voice said the scheme left “too many people short-changed”. The FCA has also received challenges from three lenders: Volkswagen Financial Services, Mercedes Benz Financial Services, and Credit Agricole Auto Finance.
The UK’s Upper Tribunal has agreed to hear legal challenges to the scheme, either in December or February next year.
It means that lenders will no longer need to calculate or pay compensation to people owed money under its scheme, until the legal process concludes.
The FCA said it would need to decide what to do next if the courts decided to overturn the programme. Without a scheme in place, the FCA has estimated that up to 19 million complaints would need to be handled individually, taking three years and costing lenders £6bn more.
It said it would “defend the scheme robustly as lawful and the best way to resolve such a widespread, long running and complex issue”.
Ultimately, the industry is expected to cover the full costs of any compensation scheme, including any administrative costs.
Lenders – including some of the UK’s biggest banks and specialist motor finance firms – have already set aside billions of pounds for potential payouts.
The body that represents the lending industry, the Finance and Leasing Association, said it had “concerns” about the programme but that it was choosing not to raise a legal challenge.
Santander, Barclays and Lloyds also accepted the scheme, despite raising concerns that the level of redress is disproportionate to those who suffered harm.
Even if drivers are entitled to compensation from these lenders they will need to wait.
There were some concessions made to lenders in a scaled-down final compensation plan from the FCA.
The Supreme Court considered three test cases which influenced the FCA’s decision and, ultimately, limited how broad the compensation programme could have been.
It focused on whether the car dealers had a duty to act on behalf of their customers, rather than in their own interests. The test case which was upheld was that of Marcus Johnson, who bought his first car – a Suzuki Swift – in 2017.
In his case, the Supreme Court said the terms of his finance deal were unfair due of the size of the commission payment, and the fact he appeared to have been misled over the relationship between the finance firm and the dealer.
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