The consumer champion explains how an industry-wide redress scheme means people do not need to make a claim.
Martin Lewis has taken to social media to share a video breaking down the “huge news” announced by the Financial Conduct Authority over potential payouts of £1,100 for millions of vehicle owners who took out car finance before 2021.
The City regulator is reviewing historical Discretionary Commission Arrangements (DCAs) in the motor finance market and said on Tuesday that it will “consult” on “an industry-wide redress scheme.”
Posting on X and YouTube, the consumer champion explained how that particular term is “mostly technical” and really means that the FCA has “made up its mind” that redress will be paid. Martin said: “It plans a section 404 redress scheme that will require lenders to proactively contact all borrowers who met the miss-selling criteria and offer them a fixed redress based on FCA rules.”
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He also said there is no need for people to make a complaint to their finance lender as all firms would be required to pay an amount of money set out by the regulator.
Martin added that this is likely to see more people eligible for compensation, without the need to fill in a claim form or submit a complaint.
Two types of car finance mis-selling
He went on to explain the two main types of car finance mis-selling that the FCA is reviewing.
Discretionary Commission Arrangement (DCA)
Martin said: “This is about 40% of car finance deals and applies where brokers and dealers could increase the amount of interest they charged customers (without telling them) on PCP and Hire Purchase agreements up to 2021 in order to increase their commission.”
Commission Disclosure complaints
Martin explained: “These are based on the Court of Appeal’s surprise ruling that if car finance agreements didn’t tell consumers all details of commission including the amount (they rarely did) they were unlawful. It applies to up to 99% of car finance cases (including DCA cases).
“The Court of Appeal ruling took everyone, including the regulator by surprise and was not something it was looking at. Even I have concerns that the decision risks doing more harm than good. It has been appealed to the Supreme Court which is due to be heard on 1 to 3 April.”
However, Martin also warned that the amount of redress paid out will depend on the Supreme Court decision.
He said: “It’s important to remember that while Commission Disclosure complaints are all about the Courts, DCAs were about a breach of the FCA regulations. Yet even on that, the regulator can’t act until it has clarity from the court.”
You can view Martin’s full reaction to the FCA update on YouTube here.
The FCA statement said that it wants “to provide as much certainty as possible to firms, consumers and stakeholders”. It is seeking to understand if firms failed to comply with requirements relating to DCAs and if consumers lost out as a result.
If they have, the regulator said it wants to make sure consumers are appropriately compensated in an orderly, consistent and efficient way.
The FCA added: “We are confirming that if, taking into account the Supreme Court’s decision, we conclude motor finance customers have lost out from widespread failings by firms, then it’s likely we will consult on an industry-wide redress scheme.
“We previously said it is more likely than when we started our review that we will introduce an alternative way of dealing with complaints.
“Under a redress scheme, firms would be responsible for determining whether customers have lost out due to the firm’s failings. If they have, firms would need to offer appropriate compensation. We would set rules firms must follow and put checks in place to make sure they do.”
A redress scheme would be simpler for consumers than bringing a complaint, the regulator said.
It added: “We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive. It would also be more orderly and efficient for firms than a complaint-led approach, contributing to a well-functioning market in the future.”
The regulator said it would confirm within six weeks of the Supreme Court’s decision if it is proposing a redress scheme and if so how it will take the scheme forward.