The Finance and Leasing Association said it still has concerns but will not challenge the £9.1bn scheme, easing the way for payouts.
The Finance and Leasing Association said it still has concerns but will not challenge the £9.1bn scheme, easing the way for payouts.(Image: Getty Images)
The UK’s financial watchdog has been given a clearer path for its £9.1 billion motor finance compensation scheme after the main industry body joined major lenders in backing out of any legal challenge. The Finance and Leasing Association (FLA) said it had “concerns” about the programme but that it was choosing not to raise a challenge.
It follows major lenders including Santander, Barclays and Lloyds also accepting the Financial Conduct Authority’s (FCA) scheme despite raising concerns that the level of redress is disproportionate to those who suffered harm.
The FLA, which represents the UK’s motor finance firms, said it had considered how the regulator’s scheme would affect its members, their customers and the wider lending market given that it was “unprecedented in scale and scope, and the impact on the UK economy will be significant”.
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FLA chief executive Shanika Amarasekara said: “We continue to have concerns about aspects of the scheme, but our priority is that a practical solution be reached that ensures timely compensation for consumers while giving the motor finance industry and the wider market clarity and finality on this issue.
“For those reasons, we will not be challenging the FCA’s current scheme.”
Payouts are due on about 12.1 million mis-sold deals from an array of lenders at an average of £829 each, the financial watchdog said in March as it unveiled plans for its redress scheme.
The FCA expects the total amount of redress paid under its scheme to be about £7.5 billion, based on about 75 per cent of eligible consumers making a claim.
Also taking into account the cost of running the scheme, such as dealing with the millions of complaints, the total bill rises to £9.1 billion.
It thinks millions of claims will be paid out this year and the vast majority settled by the end of 2027.
It had been reported that the FLA was considering launching a legal battle against the watchdog, which set a deadline for legal challenges to be lodged by Monday.
But the decision to back out of any resistance leaves a clearer path for the scheme to be implemented and people to receive compensation.
Despite this, consumer group Consumer Voice said last week that it was preparing a legal challenge over concerns that the scheme in its current form could leave millions of consumers out of pocket by several hundred pounds per claim.
What is the mis-selling scandal?
Many cars are bought using car finance deals, with around two million sold by this method each year.
These typically involve customers agreeing to pay an initial deposit and then monthly instalments with interest payments. However, many of these historic deals have been considered potentially unfair following investigations.
Most of the car finance deals under scrutiny involve so-called discretionary commission arrangements (DCAs), which were stopped by regulators in 2021.
This refers to arrangements whereby brokers, including car dealers, were able to increase interest rates on car loans so they could get more commission.
Who might be affected?
Anyone who took out a motor finance agreement between April 6, 2007 and November 1, 2024 for the purchase of a car, motorbike, campervan or van.
How will the redress scheme work?
The FCA advises that people submit a complaint to their lender using a template letter on its website.
The final plan has separated the redress process into two schemes, with one relating to loans taken out after April 1 2014, and the other for those prior to this date.
Lenders will then have three months from the date of the FCA’s schemes launching to contact those customers and let them know if their car finance agreement is eligible for compensation.
It means customers with loans dated from April 2014 must be told within three months of June 30 whether they are owed compensation and how much it will be.
Those with loans from before this must be told whether they are owed compensation and how much it will be within three months of August 31 this year.
Lenders will also be expected to contact those customers who have not complained and who may be eligible. People will need to reply to say if they want their case to be assessed.
How much money will people get?
Firms are expected to pay out compensation totalling around £7.5 billion. The FCA said the average compensation payment for each car finance deal will be around £829.
How long could it take to receive a payout?
Customers who have made inquiries about their car loans should be told whether they are eligible and how much they could receive by the end of this year.
Firms also have until the end of 2026 to contact people with affected car loans since April 1 2014 who have not made a complaint.
They will have until the end of February 2027 to complete this for those with older loan agreements.
Consumers must respond within six months of these dates if they wish to join the relevant schemes.
Full details on how to complain to your lender and the redress plan can be found on the FCA website.