Millions of drivers could be owed hundreds of pounds in compensation
Drivers owed compensation for being mis-sold car finance have been urged not to needlessly pay out to get their refund. Some 14 million people are thought to be owed hundreds of pounds because of the historical scandal. Lenders will have to contact those affected by the issue to invite them to sign up for a compensation scheme, as mandated by the Financial Conduct Authority.
The scandal relates to people who were mis-sold car finance, where lenders increased interest rates charged on the loan, to give dealers more commission. Many customers were not properly informed of how these interest rates worked.
The average payout per finance agreement is estimated at £700, and one person could have several agreements where they are owed compensation. Motorists keen to get their due amount paid into their bank account have been warned not to use third-party claim companies.
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Tom Jervis, consumer editor at Auto Express, said: “Those who’ve had multiple affected deals could receive several thousand pounds in total and my advice is simple: don’t use third-party claims firms. They’re completely unnecessary here and can take up to 30 percent of your compensation in fees.
“The FCA’s process is free, fair and designed to be easy to use, so there’s no reason to hand over a large cut of your money to a middleman.” If you had three compensation claims this would mean you would be owed £2,100 on average.
Paying out for a third-party company’s services with a 30 percent fee would mean you would needlessly lose £630 of your claim. Lenders will have to contact those affected within six days of when the FCA compensation scheme starts, to invite them to sign up.
If you have complained to your lender previously, it will automatically be assumed that you want to opt in if you do not reply within a month of the scheme’s start date. If you are not contacted as the lender has not stored your details, you will have one year from the start of the scheme to get in your claim.
You also have the option not to sign up for the scheme and go to court, with the potential to get even more in compensation. But there is no guarantee you will get a higher payout if you choose this route.
Mr Jervis welcomed the new details from the FCA about how the scheme will work. He said: This car finance compensation scheme has been quite confusing from the start, with very little clarity about what’s been happening, so it’s a relief that we’re finally getting some clear answers.
“The FCA’s official redress scheme will provide a proper route for millions of motorists to get fair compensation after years of uncertainty.”
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Who could be eligible for car finance mis-selling compensation?
According to FCA guidance, you could claim if you received one of of these three types of car finance between April 6, 2007 and November 1, 2024:
- A discretionary commissions arrangement
- A finance deal with an excessively high commission (such as 35 per cent of the total cost of credit and 10 per cent of the loan)
- An agreement granting the broker exclusive rights to the lender.
The FCA has not confirmed any dates for when the compensation scheme will start but it has said payouts could be made from next year.