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Mitchell Labiak, a business reporter at BBC News, reported that victims of car finance mis-selling may receive less than £950 per deal in a proposed compensation scheme by the financial regulator. The first payouts are anticipated to occur next year. The Supreme Court recently ruled that hidden commissions from lenders to dealers on car loans were not deemed unlawful, which means that millions of motorists may not be eligible to make a claim. Nonetheless, the Supreme Court did leave open the possibility for compensation claims related to particularly large commissions that were deemed unfair.
In response to the ruling, the Financial Conduct Authority (FCA) announced plans to consult on a payout scheme that could cost between £9bn and £18bn. The FCA mentioned that it is challenging to estimate the total cost to the industry at this stage, but it is believed that millions of individuals could potentially be eligible for compensation under the scheme. The industry is expected to bear the full costs of the compensation scheme, including any administrative expenses. The FCA advised individuals who have not yet raised a complaint to contact their car loan provider instead of using a claims management company.
The FCA has stated that firms should inform customers of their potential eligibility for compensation and what steps they need to take. Claims are expected to cover agreements dating back to 2007. However, the Finance & Leasing Association has expressed concerns about the feasibility of implementing a fair redress scheme dating back to 2007 due to the lack of required dated information. The FCA will commence its consultation in October to determine who qualifies for compensation and the amount they should receive, emphasizing that the Supreme Court ruling has brought clarity to the situation.
The issue of car finance mis-selling traces back to 2021 when the FCA prohibited deals involving discretionary commission arrangements (DCAs), where dealers received commissions based on the interest rates charged to customers. Since January, the FCA has been evaluating whether individuals with such deals before 2021 should receive compensation. Following the Supreme Court ruling, the FCA announced that the compensation scheme would cover not only cases where DCAs were not properly disclosed but also instances where the commission was unreasonably high. The FCA stressed that the amount of compensation awarded would depend on the harm suffered by the consumer and the need to ensure continued access to affordable vehicle loans
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