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New court papers reveal the government attempted to cap payouts in the motor finance scandal at a level lenders could handle, while the Financial Conduct Authority (FCA) acted unlawfully in not protecting consumers. Both the Treasury and the FCA are under increased scrutiny as the car mis-selling scandal returns to court. Consumer advocacy group Consumer Voice has joined forces with claims-focused law firm Courmacs Legal to push for a reform of the £9.1bn compensation scheme, which they argue has strayed from its original intention.

Internal documents obtained by Consumer Voice indicate the regulator collaborated closely with the Treasury in developing the scheme; so extensively that the watchdog would not release its consultation paper without guidance from the Treasury. The filings suggest former Chancellor Rachel Reeves once tried to intervene in the Supreme Court case due to the "potential negative economic consequences."

Reeves' attempt to intervene was rejected by the Court in February 2025, just months before the hearing commenced. Consumer Voice claims Reeves' challenge implies the Treasury provided guidance to the FCA, aiming to ensure redress payments were at a level easily absorbed by lenders. The Financial Conduct Authority has previously criticized Consumer Voice and Courmacs Legal for not providing a "full and frank explanation" of their commercial interests and incentives in advocating for changes to the scheme.

Both parties stand to gain financially by handling cases for consumers outside the official redress mechanism, according to the watchdog. The Supreme Court partially overturned a landmark ruling on car finance deals, but found that one undisclosed commission created an "unfair relationship," opening the door for an industry-wide redress scheme.

Four challenges to the FCA's redress scheme are set to be heard by the Upper Tribunal by February 2027. Volkswagen Financial Services, Mercedes Benz Financial Services, and Crédit Agricole Auto Finance have joined a case, arguing the scheme imposed an unlawful blanket assumption that most customers suffered a financial loss if their commissions were not clearly disclosed.

Major banks, including Lloyds Banking Group and Santander, have set aside billions in provisions to cover potential payouts, stating they are disappointed with the scheme but won't challenge it. The FCA has paused certain aspects of the program, aiming to avoid the legal challenges. The watchdog maintains it consulted openly with the Treasury in developing the scheme, emphasizing that it acted independently in making decisions about the compensation scheme.