Millions of drivers could soon be paid compensation for the car finance scandal as the industry confirmed that it would not challenge the regulator's redress scheme.
The Finance and Leasing Association has confirmed that it will not be mounting a legal challenge to the Financial Conduct Authority's compensation scheme.
The UK regulator announced last month that it would introduce a compensation scheme for motorists impacted by the car finance scandal.
It estimated that 12.1 million agreements would be eligible for redress at a total cost of £9.1billion, or £829 per agreement.
There had been some fears that lenders and major banks would query the redress scheme over concerns that drivers were not receiving how much they should be owed.
However, the FLA has confirmed that it will proceed with the compensation, highlighting the importance of motorists who have "suffered loss" from the scandal.
Shanika Amarasekara, chief executive of the FLA, described the scheme as being the "right way" to ensure that drivers receive suitable levels of redress.
She added: "The FLA has undertaken a detailed review of the FCA's proposed scheme in close consultation with our members, alongside internal and external economists and legal counsel."
More than 12 million car finance agreements are included in the FCA's car finance compensation scheme | PA"We continue to have concerns about aspects of the scheme, but our priority is that a practical solution be reached that ensures timely compensation for consumers while giving the motor finance industry and the wider market clarity and finality on this issue."
Ms Amarasekara said it was the FLA's responsibility to consider the impact of the compensation scheme, given that it is the leading industry trade body.
She noted that the FLA would continue to "engage constructively" with the FCA to roll out the scheme effectively.
Speaking after the announcement of the redress scheme, Nikhil Rathi, CEO of the FCA, outlined that lenders and banks could start paying compensation as soon as they wanted.
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The FCA said the average agreement would receive £829 in compensation in the aftermath of the car finance scandal | PA However, he admitted that this was a very unlikely scenario as companies would want to look over the terms of the scheme and consider appealing against it.
FCA guidelines suggest that the vast majority of car finance claims will be settled by January 2028, while some payments are expected to begin later this year.
A short implementation period has been rolled out to ensure lenders and banks can prepare to pay back compensation to affected motorists.
This will be from June 30, 2026, for loans taken out from April 1, 2014. A second deadline for loans agreed earlier will end on August 31, 2026.
The vast majority of drivers will have received their compensation by the end of 2027 and the beginning of 2028 | FCATom Jervis, consumer reporter at Auto Express, said: "Ultimately, it's only right that the finance industry has stepped aside to enable the FCA's proposed redress scheme to be executed as laid out.
"At its core, this is about compensating consumers who were mis-sold and the current plans will set about doing just that, whilst also making some concessions on behalf of the finance industry in order to protect it from irreparable damage."
Mr Jervis said he hoped that motorists would be protected from being overcharged on future policies as lenders try to recoup costs lost to the redress scheme.
He described this as being "crucial" as the majority of privately purchased vehicles are now done so through car finance.