Compensation Scheme For Car Finance Mis-Selling Set To Launch Next Year

LONDON, England – The Financial Conduct Authority (FCA) is proposing a compensation scheme for victims of car finance mis-selling, which could potentially cost the industry between £9 billion and £18 billion. The first payouts are expected to start next year, with most individual claims likely to be under £950.

This announcement follows a recent Supreme Court ruling that revealed hidden commissions on car loans were not unlawful, impacting millions of motorists who may not be able to claim compensation. However, the court provided an opportunity for claims related to particularly large commissions deemed unfair.

FCA chief executive Nikhil Rathi emphasized that some financial firms violated laws and regulations, indicating that customers are entitled to compensation. The FCA plans to consult on this payout scheme beginning in October.

In 2021, the FCA banned Discretionary Commission Arrangements (DCAs), which allowed car dealers to earn commissions based on the interest rates charged to buyers, potentially leading to inflated costs for consumers. As a result, approximately 80,000 complaints regarding these practices had been on hold until the Supreme Court’s ruling.

The implications of the ruling mean claims from consumers can now proceed, although many may be disappointed by the expected payout amounts. Rathi stated that affected motorists should approach their car loan providers directly rather than utilizing claims management companies, as this could reduce the amount they receive.

This compensation scheme aims to address concerns about consumer protection and ensure fair treatment in the motor financing market. Bobby Dean, a member of the Treasury committee, remarked that the mis-sold car finance remains a significant issue, similar to the Payment Protection Insurance (PPI) scandal.

The industry is currently preparing to handle the financial implications of this proposed scheme, with major lenders like Lloyds Bank and Santander already setting aside substantial reserves for potential payouts. As the consultation begins, the FCA aims to clarify eligibility criteria and compensation amounts.

Ultimately, the success of this initiative will depend on establishing a scheme that balances fairness for consumers while maintaining the integrity of the motor finance market.