[ad_1]
Financial watchdog works out details of compensation deals while clamping down on hundreds of motor finance claims promotions
Millions of consumers could be eligible for compensation under the financial watchdog’s motor finance redress scheme, its boss said.
The compensation scheme was set up after the Supreme Court ruled that some car finance firms broke the law or its rules by not properly informing customers about commission paid by lenders to the car dealers that sold them the loan.
The regulator estimates the final cost of any redress scheme will be around £18bn with compensation calculated to be averaging at £950 per claimant but he stressed not all claimants will be eligible. “We expect the average [compensation] to be hundreds, not thousands,” Nikhil Rathi, FCA chief executive said.
The redress scheme follows a Supreme Court ruling that there was an “unfair relationship” under the Consumer Credit Act as a result of undisclosed (or partially disclosed) commissions paid by lenders to motor dealers in car finance deals.
Rathi confirmed evidence of similar “unfair relationships” between lenders and consumers and that a large number of customers “were not properly informed” on the details of their car purchase deal.
“We hope that compensation, where it is due, can start to be paid next year,” he told MPs on the parliamentary Treasury Select Committee. He told them that during a period from 2007 through to 2020 there are around 30 million agreements with consumer but not all would be eligible for compensation.
The FCA said it was still working on the details of the redress scheme and was consulting widely. “One of the things that we are looking at very closely is what the scope of the scheme will be,” Mr Rathi said.
He said the FCA would carry out a consumer awareness campaign to alert motorists to the fact they may be due compensation. He said people who thought they might be affected should contact their lenders and “complain now,” he said.
“You do not need to use a claims management companies or a law firm who may take up to 30 per cent of any compensation that you are due,” he said.
MPs heard that the FCA has asked hundreds of claims management companies (CMCs) to remove adverts relating to motor finance redress stressing that average compensation payouts are likely to be much lower than advertised.
Rathi said the regulator intervened when it thought firms had been misleading customers over the amount of compensation they could receive if they complain about their historic car finance agreement.
He said: “Some of the CMCs and law firms are putting out high-pressured advertising suggesting to consumers they may get more than £4,500, and numbers like that.
“We have intervened in around 400 promotions by claims management companies, asking for them to be removed or amended, since 2024. 171 we have asked to change since the Supreme Court judgement itself.
“So we don’t agree with some of those very large estimates … we do think the average is likely to be hundreds, not thousands, of redress.”
FCA chair Ashley Alder added: “We want to ensure that the design of the [compensation] scheme is pitched at a level which does offer consumers a fair outcome and a better alternative [to the courts] for the vast majority.”
The FCA will publish its consultation in the coming weeks and expects a “critical mass” of compensation claims to be dealt with in 2026.
[ad_2]
Source link