An estimated 14 million motorists in the UK could each receive around £700 in compensation for being mis-sold car finance, according to regulators.
The Financial Conduct Authority (FCA) has proposed an industry-wide scheme to compensate buyers who took out unfair car finance agreements from April 2007 until November 2024.
Based on the number of consumers estimated to be eligible for the scheme, lenders could pay out a total of £8.2 billion in compensation.
The scheme would be free to access for consumers affected and much easier than having to submit an individual claim.
However, the £700 average is less than previous estimates by the FCA that payments would be closer to £950.
The car finance scandal centres around salespeople being incentivised to charge higher interest rates without the knowledge of buyers in order to pot an increased commission.
The FCA’s proposed compensation scheme comes after a Supreme Court ruling on car finance mis-selling in August. While the course ruled against several cases, it ruled in some circumstances that the value of a commission for selling a finance deal and how it was disclosed pointed to an unfair relationship between banks and car dealers, which is illegal under the Consumer Credit Act.
FCA chief executive Nikhil Rathi said that “now we have legal clarity”, it was time “customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.”
Rathi added that there would be “a range of views” on the specifics of the scheme, including in its scope and how compensation was calculated, and said: “Not everyone will get everything they would like. But we want to work together on the best possible scheme and draw a line under this issue quickly.”
The FCA cited research that found 46% of consumers who were aware of the compensation scheme but hadn’t made a claim cited a lack of clarity on whether their claim would be eligible; 81% of those considering making a claim said a compensation scheme would give them added confidence to do so.
How the scheme would work
The compensation scheme would be open to those who took out motor finance agreements between 6 April 2007 and 1 November 2024 in which commission was payable by the lender to the broker.
Consumers who think they weren’t given key information about a motor finance arrangement they took out in that period should complain to their lender now.
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