Car buyers may receive over £8 billion in compensation through a proposed scheme by the City watchdog. The Financial Conduct Authority expects payments to begin next year on around 14 million unfair motor finance agreements, with an average payout estimated at £700 per agreement.
The FCA introduced an industry-wide compensation scheme following evidence that some motor dealers failed to disclose earning commission from lenders on car finance deals. This move came after a Supreme Court ruling clarified an issue that could have expanded the number of eligible compensations.
While the expected payout is lower than the initial estimate of £9 billion to £18 billion, it remains one of the largest compensation schemes in the financial sector. Experts anticipate additional costs of £2.8 billion for firms, bringing total industry expenses to approximately £11 billion.
The proposed scheme, which would be free for consumers, aims to address concerns regarding claims management companies that could take a significant portion of any payout. The FCA emphasized that individuals can submit their complaints directly through a template letter on the FCA’s website.
The FCA believes the scheme would benefit lenders by avoiding costly legal proceedings and administrative expenses. It would cover motor finance agreements between April 6, 2007, and November 1, 2024, where commission payments were made by lenders to brokers, often car dealers.
Nikhil Rathi, FCA’s chief executive, emphasized the importance of fair compensation for customers and the simplicity of the scheme. The FCA plans for lenders to contact those who have already reported mis-sold car finance, with a review process for unaddressed cases.
Compensation eligibility is based on buyers not being informed of certain commission arrangements between lenders and brokers or dealers. The scheme could potentially benefit about 89% of the market, involving over 30 lenders.
Zoe Morton from consulting firm RSM UK suggested that the FCA’s actions could lead to broader implications beyond motor finance, potentially affecting other sectors like insurance and financial advice.