Volkswagen, Mercedes-Benz and Crédit Agricole take compensation plan to tribunal
Three motor finance providers have argued that the Financial Conduct Authority's proposed £9.1 billion redress scheme for car finance customers breaches their human rights, in a legal challenge that has put compensation payments on hold.
Volkswagen Financial Services and French bank Crédit Agricole brought the case before the Upper Tribunal in London, arguing that the FCA's plan interfered with their property rights under the European Convention on Human Rights. Mercedes-Benz Financial Services has since joined the challenge.
The dispute centres on commission payments lenders made to car dealerships when customers took out finance to buy vehicles.
The FCA introduced the redress scheme following a Supreme Court ruling on the issue last year. The regulator expects the scheme to generate roughly £7.5 billion in payouts across 12.1 million loans taken out between 2007 and 2024, with operating costs of £1.6 billion.
Under the proposals, lenders must calculate refunds using either a 17% or 21% reduction in the annual interest rate charged on a loan, depending on when the agreement was made.
Lawyers acting for Volkswagen Financial Services, led by Richard Handyside KC, told the tribunal the interest rate reductions were “not reasonable proxies for loss and are not evidentially supported.” They said the lender “strongly supports the introduction of a consumer redress scheme in relation to motor finance agreements,” but added that “any such scheme must be lawful.”
The lawyers also argued the scheme amounted to “a disproportionate interference” with the company's property rights, claiming the FCA “could have designed a more targeted and proportionate scheme that met its objectives.”
Lord Keen of Elie KC, representing Mercedes-Benz Financial Services, told the tribunal the regulator had exceeded its legal authority. He criticised the FCA's treatment of loans from in-house finance providers, saying its “view of the market as a monolithic bloc is simply wrong” and that “the FCA irrationally disregarded the data in favour of its own unexplained assumptions.”
Lawyers for Crédit Agricole said the FCA's redress calculation was “unlawful because it has no rational connection with any loss,” pointing to what they described as “multiple flaws in the FCA's apparent approach to deriving” the interest rate adjustments.
The FCA has defended the scheme, telling the tribunal in a written submission that it strikes “a careful balance” between consumer and lender interests. A spokesperson said: “Our compensation scheme is fair to consumers, proportionate for firms and would put £7.5 billion back into people's pockets. It has broad support and most lenders are committed to implementing it. We will defend it robustly as the quickest, simplest and most efficient way for firms to put things right.”
Consumer Voice, a group supporting compensation claims against the lenders, is separately challenging the FCA in court on the grounds that the scheme is too generous to firms. However, the FCA has questioned whether Consumer Voice has sufficient standing to bring its case, noting that the group would neither pay nor receive redress under the scheme and had not clearly set out how it is funded.
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