Around 1.1 million low-value car finance agreements will not be eligible for redress, consumer law firm Slater and Gordon found.
Low-income drivers who relied on a loan for cheaper cars are more likely to miss out on payouts under the UK watchdog’s plans for compensation, according to new analysis.
Around 1.1 million low-value car finance agreements will not be eligible for redress through the Financial Conduct Authority’s (FCA) scheme, analysis by consumer law firm Slater and Gordon found.
This is because car finance deals involving smaller amounts of commission – £120 or less for agreements before April 1 2014, and £150 or less for after that date – are considered to be fair and are not eligible for compensation under the final rules of the scheme.
The FCA said commission amounts below these levels are unlikely to have influenced the consumers’ decision or broker’s behaviour.
But Slater and Gordon said in the majority of cases where smaller amounts were borrowed, often a few thousand pounds or less, the loan was used to buy cheaper cars or vans.
This indicates that it disproportionately impacts more financially stretched consumers, as opposed to loans being used as a top-up for more expensive vehicles.
The firm used its own client data and case experience to establish the pattern.
The FCA set up the industry-wide scheme to compensate people who were mis-sold a car loan between April 2007 and November 2024 because of “hidden” commission that motorists were not properly informed about when they made the agreement.
Slater and Gordon argues that the minimum commission threshold automatically rules out agreements that may have been unfair, while also overlooking the fact that relatively small sums can make a material difference to poorer households.
Elizabeth Comley, the law firm’s chief operating officer, said: “The people being cut out of this scheme are those at the lower end of the market – drivers who borrowed smaller amounts to buy cheaper cars and who can least afford to lose out.
“You don’t see high-income consumers taking out £2,000 car finance agreements.
“These are people stretching to afford a vehicle, and they are now being told they don’t qualify for compensation.”
Consumer Voice, a group representing consumers, is pursuing a legal challenge to the planned compensation package which it argues will short-change drivers who suffered harm when they took out a loan.
But the regulator is also facing a lawsuit from three lenders – the financial services arms of carmakers Volkswagen and Mercedes-Benz and the car finance arm of French bank Credit Agricole – who are not happy with the redress plans that are set to cost the industry some £9.1 billion.
The legal battle means the scheme is currently in limbo with millions of payouts hanging in the balance, as the FCA warned over delays, changes or the potential for it to collapse.
Despite the uncertainty of the legal cases, the watchdog has said it will defend its scheme which it says is “fair to consumers and proportionate for firms”.
It is still advising consumers to complain directly to their lender if they think they might be owed compensation, and has repeatedly said they do not need to use a law firm or claims management company which can charge unnecessary fees.
A spokeswoman for the FCA said: “Our scheme is fair and proportionate and would put £7.5 billion back into people’s pockets.
“Very low levels of commission are unlikely to have influenced the consumer’s decision or the broker’s behaviour – so it’s right they aren’t considered for compensation.”