A consumer group is preparing to take the City watchdog to court in the hope of overhauling a £9.1bn compensation scheme that it claims massively shortchanges victims of the UK car loan scandal.

Lawyers working for Consumer Voice have written to the Financial Conduct Authority (FCA), notifying them that they intend to challenge the redress programme in order to protect drivers’ interests, according to sources familiar with the group’s plans.

It will dash the regulator’s hopes of drawing a line under the motor finance scandal, in which drivers were overcharged for loans as a result of commission payments between lenders and car dealers between 2007 and 2024.

The challenge would mean hauling the FCA to the upper tribunal, where a judge would be asked to review the merits of the long-awaited compensation programme. That could end up delaying payouts to drivers, which were widely expected to begin as early as this summer.

An FCA spokesperson said in a statement: “Our scheme is the quickest, fairest way to compensate consumers. It seems contradictory that organisations claiming to represent consumers would seek to delay payouts for millions of people.”

However, Consumer Voice – which has paired up with the claims-focused law firm Courmacs Legal to file the challenge – believes it is protecting consumers from lowball payouts, with the FCA currently due to hand aggrieved borrowers £830 on average per mis-sold loan.

Consumer Voice told the FCA it has given too much weight to concerns that banks and specialist lenders would suffer if the compensation bill was too large, rather than focusing on consumer protection. It has also said the FCA has unfairly capped the interest paid out on car loan scandal victims’ compensation payouts, and wrongly narrowed the scheme in a way that limits redress for drivers.

The watchdog has insisted the scheme strikes a balance between borrowers’ and banks’ interests.

The Guardian understands that, barring a voluntary turnaround by the FCA, a formal challenge could be filed as early as Friday, ahead of the 27 April deadline. This would be the first time a consumer-focused group challenges the regulator over a compensation scheme in UK courts.

Consumer Voice, founded by ex-Which? staffers Nikki Stopford and Alex Neill in 2023, partners up on claims with law firms, with an aim to help consumers “get back money they’re owed from rule-breaking companies”.

It is currently pursuing group claims against 23 companies, including Amazon, Facebook, Mastercard, Apple iCloud, and Sony Playstation, and makes money by doing communications work for law firms to raise awareness of their claims. It also receives a commission when their members join one of the law firms’ cases.

Courmacs, based in Blackburn, is providing pro bono services in the case against the FCA. Ultimately, larger payouts for consumers will boost Courmacs’ earnings, with the firm taking up to 30% of client settlements.

Consumer Voice co-founder Neill said the FCA had designed a scheme that leaves ordinary motorists hundreds of pounds out of pocket. “We are taking this unprecedented step to challenge the regulator’s redress scheme because it doesn’t deliver fair or lawful compensation for drivers,” she said.

“As it stands, millions of people will be undercompensated, and the lenders involved in this scandal won’t be meaningfully held to account,” Neill added.

“Consumers have been let down by the lenders who mis-sold them car finance. They should not be let down again by the regulator that is meant to protect them.”

The FCA issued the final terms of the £9.1bn compensation programme last month. About £7.5bn will be paid out to borrowers, while the remaining £1.6m will cover administrative costs for banks and specialist lenders.

That is a fraction of the up to £44bn that some analysts were suggesting banks could face prior to last summer’s supreme court ruling.

Those initial forecasts spooked lenders, which have heavily lobbied regulators and ministers in the two years since the scandal gained steam. Resulting interventions included the chancellor, Rachel Reeves, controversially urging the supreme court not to award large payouts early last year. In the summer, she also considered overruling the court had it sided too closely with consumers.