Millions of individuals impacted by a car finance controversy could collectively receive between £9 billion and £18 billion in restitution following the unveiling of potential compensation plans. The Financial Conduct Authority (FCA) has disclosed its intention to initiate a consultation on a comprehensive scheme within the industry. This move comes in light of revelations that certain car dealers engaging in finance transactions were receiving commissions from the financial institutions providing the loans, potentially leading to inflated interest rates.
The FCA’s decision was prompted by a recent Supreme Court ruling that clarified an aspect related to potential compensation eligibility for a larger group of individuals. Nikhil Rathi, FCA’s chief executive, emphasized the necessity for compensating customers of firms found in violation of laws and regulations, aiming for a straightforward scheme that does not require third-party claims management companies or legal representation. Although the timeline for implementing the scheme is not yet finalized, the FCA anticipates commencing payouts next year.
While awaiting further details on the compensation scheme, affected parties are encouraged to file complaints with their respective banks or finance providers if they believe they have been wronged. A consultation on the operational framework of the scheme is scheduled to commence in October, with the first payments expected to be disbursed in the upcoming year.
In addition to the car finance compensation scheme, another substantial restitution initiative is in progress as Mastercard prepares to allocate £200 million in compensatory funds to customers. The potential scope of eligibility for compensation remains uncertain, but estimates suggest that up to 14 million individuals might qualify.
The issue at hand revolves around discretionary commission arrangements that could have affected the interest rates on loans for vehicles purchased on finance between 2007 and 2021. The Supreme Court’s ruling highlighted unfair practices related to commission structures, potentially broadening the scope of compensable grievances. The FCA estimates an average compensation amount of less than £950 per agreement per vehicle, with interest to be calculated based on a set formula.
As the consultation progresses, determining the structure of the compensation scheme, including opt-out versus opt-in mechanisms and calculation methodologies, remains pivotal. The FCA anticipates the total cost of the scheme to fall within the range of £9 billion to £18 billion, with a mid-range estimate of £13.5 billion. Balancing the need for accountability with the sustainability of lending practices and economic impacts is a crucial consideration for the regulatory body.
