Millions of individuals entitled to compensation for car finance loans sold unfairly are set to potentially receive payouts in the upcoming year. Nikhil Rathi, the CEO of the Financial Conduct Authority (FCA), revealed that approximately 30 million car finance agreements were established between 2007 and 2020. However, not all individuals will be eligible for compensation, as highlighted by Rathi.
The compensation scheme focuses on discretionary commission arrangements (DCAs) where brokers and car dealers could boost interest rates on car loans to earn higher commissions. The FCA disclosed that some motor finance companies failed to adequately disclose commission details to customers, leading to a consultation on a redress scheme for affected drivers.
It is estimated that there were 14.6 million DCA car finance agreements and a smaller number of car finance agreements with undisclosed high commissions during the specified period. Rathi informed MPs that not all 30 million agreements would qualify for compensation and emphasized the need to define the scheme’s scope thoroughly.
Regarding the consultation process, Rathi mentioned that compensation distribution might commence next year following the launch, aiming to swiftly address past practices. The FCA advises drivers against engaging lawyers or claims management companies for complaints, instead encouraging direct contact with the lender for a self-representation process.
The FCA cautioned against misleading advertising by claims management companies promising exorbitant compensation amounts, emphasizing that the average redress is likely to be in the hundreds rather than thousands. The projected total cost of the compensation scheme ranges between £9 billion and £18 billion, potentially involving 38 motor finance firms in the UK.
The developments follow a Supreme Court ruling in August absolving lenders of responsibility for concealed commission payments on car finance agreements, a distinct issue from the ongoing DCA investigations by the FCA.