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The car finance industry has expressed its concerns over the financial regulator’s proposed compensation scheme for mis-selling car loans. The Finance and Leasing Association (FLA) has criticized the plan, citing practical issues surrounding the possibility of claims dating back to 2007. This comes after a Supreme Court ruling that narrowed the scope of potential payouts for hidden commissions on car loans, leaving open the potential for millions of drivers to receive compensation.
The Financial Conduct Authority (FCA) is set to begin consulting on the compensation issue in October, with anticipated payouts expected to be less than £950 per deal. Martin Lewis of Money Saving Expert estimates that up to 14 million people could be eligible for compensation. However, FLA’s Stephen Hadrill raised concerns about the impracticality of the redress scheme going back to agreements from 2007, highlighting the difficulty for both firms and customers to have retained records from that far back.
The judgment by the Supreme Court has left open the possibility for compensation claims based on particularly large commissions deemed unfair. However, there remains uncertainty over what qualifies as an “unfair” agreement, as multiple factors need to be considered. The FLA has called for the FCA to provide clearer guidance on evaluating the fairness of loans, warning against a one-size-fits-all approach. The total cost of such a compensation scheme is estimated to range between £9bn and £18bn, with the finance industry expected to bear the full financial burden.
With concerns over potential administrative costs impacting the cost of lending for consumers, the FCA has emphasized the importance of a healthy finance market for new and used cars to continue. Customers who suspect they may have been treated unfairly are encouraged to contact their lenders directly to make a complaint, without the need for claims management companies or law firms. The positive outcome of the Supreme Court ruling has alleviated fears of a worst-case scenario for the finance industry, with banks seeing a surge in shares following the decision
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