Millions of motorists who were victims of improperly sold car finance loans may be entitled to compensation in the upcoming year. The head of the financial regulatory body shared details on the potential payouts and the number of affected drivers.
Nikhil Rathi, the CEO of the Financial Conduct Authority (FCA), disclosed that around 30 million car finance agreements were established between 2007 and 2020. However, not all individuals will qualify for compensation, as highlighted by the FCA’s previous estimate of under £950 per claimant, with specific scheme particulars yet to be unveiled.
The compensation initiative focuses on discretionary commission arrangements (DCAs), where brokers and car dealers could inflate interest rates on auto loans to boost their commissions. The FCA revealed that certain motor finance companies failed to adequately inform customers about these commissions, prompting the consideration of a redress scheme for affected drivers.
It is estimated that there were approximately 14.6 million DCA car finance agreements from 2007 to 2020, with a smaller number of agreements featuring undisclosed high commissions, potentially making them eligible for compensation. Mr. Rathi informed a parliamentary committee that not all 30 million agreements would qualify for redress.
Emphasizing the scheme’s scope, Mr. Rathi indicated that a significant portion of the agreements likely violated disclosure laws, resulting in unfair relationships. He highlighted that many consumers were not properly informed and may have received higher interest rates than warranted for their motor finance agreements.
The consultation for the compensation scheme is expected to commence by early October, aiming to initiate payouts in the following year. The FCA aims to swiftly address past practices through this scheme. Drivers are advised against engaging lawyers or claims management companies for complaints, as they can directly contact the lender providing the car finance for free resolution.
The FCA cautioned against misleading advertisements from claims management companies, noting interventions in numerous promotions suggesting exaggerated compensation figures. The average redress amount is anticipated to be in the hundreds rather than thousands of pounds per individual.
The projected total cost of the compensation scheme ranges between £9 billion and £18 billion, potentially involving at least 38 motor finance firms in the UK. This development follows a Supreme Court ruling in August absolving lenders of responsibility for concealed commission payments on car finance agreements, distinct from the current DCA investigations by the FCA.
