- Some drivers could still receive payouts next year despite Supreme Court ruling
Millions of drivers could still receive a pay out for ‘mis-sold’ car finance deals after the Financial Conduct Authority (FCA) said it is looking into a compensation scheme.
On Friday, the Supreme Court delivered a blow to car buyers after it sided with major lenders in the car finance scandal. Had the decision gone the other way, it could have led to £44billion of payouts dubbed ‘PPI on wheels’.
However, today, the FCA announced it will consult on an industry-wide redress scheme that could begin paying out from next year.
This could amount to about £950 per car buyer – with some who bought multiple cars able to claim more than once – and cost lenders between £9billion and £18billion.
The financial watchdog says it hopes the scheme will offer fairness and certainty to both customers and firms and in doing so, ensure the integrity of the car finance industry.
Millions of car owners have been hoping for payouts over claims they were ‘mis-sold’ finance deals dating back more than a decade.
Many car finance firms failed to comply with rules or the law, by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans.
We explain what you need to know.
Hopes of compensation had been dashed after the Supreme Court ruled lenders are not liable for hidden commission payments in car finance schemes on Friday
What did the FCA say?
‘It is clear that some firms have broken the law and our rules, said Nikhil Rathi, chief executive of the FCA, ‘it’s fair for their customers to be compensated.’
He added: ‘We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.
‘Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.
‘It will take time to establish a scheme but we hope to start getting people any money they are owed next year.’
Who will be entitled to compensation?
While some car finance customers won’t get compensation because in many cases commission payments were legal, the Supreme Court ruled that in certain circumstances the failure to properly disclose commission arrangements could be unfair and therefore unlawful.
The FCA will propose rules on how lenders should decide whether someone is owed compensation and how much. It says it will monitor if firms are following the rules and act if they’re not.
The Supreme Court agreed with several factors the FCA had identified which could point towards an unfair relationship and fall foul of the Consumer Credit Act (CCA).
Such factors could include the size of the commission relative to the loan charge, the nature of the commission, for example, whether it is discretionary and the characteristics of the customer.
Commenting on the FCA’s redress scheme, Stephen Haddrill, director general at the Finance and Leasing Association, said: ‘We have concerns about whether it is possible to have a fair redress scheme that goes back to 2007 when firms have not been required to hold such dated information, and the evidence base will be patchy at best.
‘We will be interested to see how the FCA addresses this point in its consultation.’
How much compensation is due to car buyers?
The total cost of the compensation scheme is expected to rise above £9billion with the FCA estimating that most individuals will probably receive less than £950 in compensation.
The consultation will launch by early October. If the compensation scheme goes ahead, the first payments should be made in 2026.
The FCA says it will now consult on a compensation scheme for car finance customers
What should you do if you think you are eligible?
People who have already complained don’t need to do anything, according to the FCA.
However, anyone who is concerned they were not told about commission and think they may have paid too much for their car finance lender should complain now.
There is no need to use a claims management company or law firm and doing so could cost someone around 30 per cent of any compensation paid.
The FCA recognises that car finance customers want to receive any compensation owed quickly while car finance firms, lenders and investors want certainty.
The regulator says it will be working hard over the coming weeks on the details of how a scheme would work.