The Financial Conduct Authority has warned that it could have to pull the plug on the motor finance redress scheme depending on the outcome of challenges it faces from four parties.
It said in the challenges it has received the applicants argue that the rules governing the scheme are unlawful.
The banks and Consumer body have asked the Upper Tribunal to ‘quash’ or invalidate them on that basis.
The Financial Conduct Authority (FCA) has defended its industry-wide motor finance redress scheme against challenges thrown down by Mercedes-Benz, Volkswagen, Consumer Voice and Crédit Agricole Auto Finance.
In a statement issued on Friday the FCA said: “We have not yet made any decisions on what we would do under various scenarios.
“However, if the scheme, or parts of it, were quashed, we would need to carefully consider all options, taking account of all relevant matters.
“That would include whether to proceed with a revised scheme. This would likely require further consultation, and any resulting rules or guidance could face further lengthy challenge.
“It is therefore now prudent for us to supervise all lenders against a central planning assumption that under that scenario there would be no scheme.
“Lenders need, therefore, to be operationally and financially ready for a complaint-led and supervisory approach to resolve historic liabilities.
“We recognise the impact this would have on consumers who may not always complain. This would also impose significant extra costs on lenders, which is why we are being clear on our indicative assumptions now to allow adequate time for orderly contingency preparation.”
