The FCA is consulting on a redress scheme for motorists who were not properly informed about commission on car finance agreements
Millions of drivers who were mis-sold car finance deals could be in line for compensation payouts next year. The boss of the financial watchdog has today given an update on when the cash could start flowing and how many motorists might be eligible.
Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), revealed that as many as 30 million car finance agreements were signed between 2007 and 2020 – though he warned not everyone will get compensation. The FCA has previously estimated that most drivers would pocket less than £950 in compensation, but the exact details of the scheme remain under wraps.
The scheme is looking into what are known as discretionary commission arrangements (DCAs). These were deals where brokers and car dealers could bump up interest rates on car loans to bag themselves bigger commission payments, reports the Mirror.
The FCA said some motor finance companies failed to properly tell customers about the commission and it is now consulting on a compensation scheme for drivers deemed to have been affected. It’s believed there were 14.6 million DCA car finance agreements struck between 2007 and 2020. There’s also a “smaller number” of car finance deals with hefty commission, where this wasn’t properly disclosed to drivers, that could also qualify.
Mr Rathi told MPs on the Treasury Committee: “During the period that we’re looking at – from 2007 through to approximately 2020 – there are around 30 million agreements,” whilst acknowledging that not all would qualify for payouts. He stated: “One of the things that we are looking at very closely is what the scope of the scheme will be.”
Speaking about the DCA arrangements, he said: “A very significant proportion of those agreements… we do think probably breached the law when it came to disclosure and, by extension, unfair relationships.” He emphasised that a “large number of consumers were not properly informed and perhaps did not get the fairest interest rate that they should have done” regarding motor finance deals.
The consultation will launch by early October, Mr Rathi confirmed, adding: “We hope that compensation, where it is due, can start to be paid next year.”
He added: “The practices that we’re dealing with in this scheme are practices of the past, and we do want to put this behind us as soon as possible.” The FCA is warning motorists against using solicitors or claims management firms to submit complaints.
Mr Rathi stressed that people can lodge a complaint directly and without cost by approaching the car finance provider. 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. One hundred and seventy-one we have asked to change since the Supreme Court judgment 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.” The FCA has estimated that the final total cost of any compensation scheme could range between £9billion and £18billion, potentially involving at least 38 motor finance firms across the UK.
This follows the Supreme Court’s ruling in August that lenders were not responsible for hidden commission payments on car finance agreements, separate from the DCA complaints currently under investigation by the FCA.