The boss of the financial watchdog today issued an update on when car finance payouts could begin, and how many drivers could potentially be eligible
Millions of drivers who are due payouts from unfairly sold car finance loans could receive compensation next year.
The boss of the financial watchdog today issued an update on when payouts could begin, and how many drivers could potentially be eligible.
Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), said up to 30 million car finance deals were made between 2007 and 2020 – but warned not all will get compensation.
The FCA previously estimated that most drivers would receive less than £950 in compensation, but the details of the scheme have not yet been revealed.
The scheme is looking into so-called discretionary commission arrangements (DCAs). These were arrangements where brokers and car deals were able to increase interest rates on car loans so they could get more commission.
The FCA said some motor finance firms did not properly inform customers about the commission and is now consulting on a redress scheme for drivers that are deemed to have been impacted.
There are thought to have been 14.6 million DCA car finance agreements between 2007 and 2020. There are also a “smaller number” of car finance agreements with high commission, where this was not properly disclosed to drivers, that could also become eligible.
Mr Rathi told a group of 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,” and he added that not all of those will be eligible for compensation.
He said: “One of the things that we are looking at very closely is what the scope of the scheme will be.”
Of the DCA arrangements, he added: “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 said that a “large number of consumers were not properly informed and perhaps did not get the fairest interest rate that they should have done” for a motor finance agreement.
The consultation is due to be launched by early October, Mr Rathi said, adding: “We hope that compensation, where it is due, can start to be paid next year.
“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 urging drivers not to use lawyers or claims management companies to make a complaint. You can do this yourself for free by contacting the lender that provided the car finance. This is the firm you actually paid each month.
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 said that the final total cost of any compensation scheme is estimated to be between £9billion and £18billion and may involve at least 38 motor finance firms in the UK.
It comes after the Supreme Court ruled in August that lenders were not liable for hidden commission payments on car finance agreements. This is separate to the DCA complaints that the FCA is looking into now.