Boss of City regulator accused of threatening consumer group over £9.1bn car loan scheme

A consumer advocacy group has accused Britain's financial regulator of prioritizing the financial interests of lenders over motorists in its proposed £9.1 billion compensation scheme for mis-sold vehicle loans. Consumer Voice, represented by law firm Courmacs Legal, is challenging the Financial Conduct Authority (FCA)'s framework for reimbursing individuals affected by such loans between 2007 and 2024. Around 12.1 million loan agreements qualify for redress under the proposal, with average payouts estimated at £829. The group argues that the current structure will leave drivers "short-changed," claiming the FCA chose a compensatory interest rate that undervalued the actual borrowing costs of most consumers. According to court filings, the FCA set the minimum interest rate for compensation at 3 percent, calculated as the Bank of England’s average annual base rate plus 1 percent. Despite considering an 8 percent addition to the base rate, the filings suggest the FCA opted for the lower figure to reduce the financial burden on lenders, streamline the process, and expedite a resolution. The documents argue that the FCA placed emphasis on "impact and operational simplicity" over consumer protection. They noted that the watchdog recognized an 8 percent rate would better address consumer concerns but rejected it due to fears of increased costs for firms, potential legal challenges from lenders, and possible market disruptions. The filing also references Peter Andrews, a former chief economist of the FCA who served from 2013 to 2017. According to the documents, Andrews expressed concern that favoring a cheaper scheme over a more protective one was inadequate reasoning given the primary goal of the initiative should be consumer welfare. The FCA maintains that its compensation scheme is fair to both consumers and businesses, asserting that legal challenges have caused uncertainty for both consumers and the motor finance industry. Payouts originally scheduled to begin this year now face significant delays. In response to the legal challenge, the FCA has attempted to dismiss Consumer Voice's case by questioning the transparency of the group's funding and its relationship with Courmacs Legal. A spokesperson for the FCA stated that its scheme is the "quickest, fairest and most efficient way to put £7.5 billion back in consumers' pockets." The FCA is also facing separate legal challenges from the financial services arms of Volkswagen, Mercedes-Benz, and Crédit Agricole Auto Finance, each contesting the scheme on different grounds. The controversy escalated further after legal documents revealed that FCA Chief Executive Nikhil Rathi allegedly threatened Consumer Voice with "adverse consequences" if the group proceeded with its legal challenge. These remarks reportedly occurred during a Microsoft Teams call with the organization's directors just hours before the deadline to file legal objections. Rathi reportedly warned that the FCA would be "unable to collaborate" with Consumer Voice if it pursued legal action, suggesting negative repercussions for the group's future interactions with the regulator and potentially damaging media coverage. The incident highlights growing tensions within the ongoing debate over the compensation for mis-sold car loans, which has drawn attention from high-profile figures such as former Chancellor Rachel Reeves. Lenders have argued that substantial compensation payments could deter investors and harm the UK economy. Meanwhile, Consumer Voice continues to assert that the current scheme fails to adequately compensate drivers who were overcharged due to commissions paid to car dealerships. The group, founded by former Which? staff members Nikki Stopford and Alex Neill in 2023, emphasizes that its mission is to ensure consumers receive the redress they deserve from companies that violated regulations. The UK’s Upper Tribunal has scheduled hearings for the legal challenges in December or February of next year, with a judgment expected in the following months. As the dispute unfolds, the focus remains on whether the FCA’s approach to compensation aligns with the interests of consumers or those of the financial institutions it regulates.