The City watchdog has been forced to pause payouts on its £9.1billion car finance redress scheme, meaning millions of motorists face further delays in receiving compensation.

Four firms unhappy about the Financial Conduct Authority’s (FCA) plans to compensate people mis-sold a car loan have launched a legal challenge. 

Payouts were meant to start this year, but have been delayed. 

The UK’s Upper Tribunal has agreed to hear the legal challenges in December or February next year, with a judgment due in the following months.

The financial services arms of carmakers Volkswagen and Mercedes-Benz, and the car finance arm of French bank Credit Agricole, as well as Consumer Voice – a group representing consumers – want the scheme quashed, arguing the rules are unlawful. Parts of the scheme have been suspended.

That means lenders no longer need to calculate or pay compensation to people, nor tell them about compensation they are owed, until the legal process ends. 

If judges uphold the scheme, and there is no appeal against their judgment, payouts could begin in 2027.