Millions of people mis-sold car loans will have to wait longer for compensation payouts after the City watchdog revealed plans to give lenders more time to prepare for its redress scheme.
The Financial Conduct Authority (FCA) is set to unveil the final rules for the scheme in late March but is likely to make several changes after receiving more than 1,000 responses to its consultation on the plans and following a backlash in the lending sector.
If the scheme gets the green light, the regulator expects to give lenders three months before they need to start contacting motor finance customers, with up to five months for older car loan agreements due to the “scale and complexity of the scheme and in response to feedback”.
Consumers would then wait up to another three months before being told whether they are owed compensation and how much.
But the regulator is aiming to streamline the process by allowing those due redress to accept immediately without waiting for a final determination.
The regulator will also no longer require lenders to ask those who complain before the scheme starts if they wish to opt out, and will not require them to write to customers by recorded delivery, allowing them to contact them in other ways.
The FCA said: “Even with an implementation period, streamlining the process means millions of people would receive compensation in 2026.”
The FCA has been consulting on plans since it outlined a proposed compensation scheme last October that could see payouts for some 14 million unfair motor finance deals, at an average of about £700 each.
It estimated its redress scheme could cost lenders of about £11 billion once the cost of implementing the scheme and doing the work is taken into account.
Motor finance firms and lenders broke the law and FCA rules by not properly informing customers about commission paid by lenders to the car dealers that sold them the loan, the regulator has previously said.
This meant that many motorists did not have the opportunity to negotiate or find a better deal and therefore may have paid a higher interest rate for their loan.
But the regulator’s plans have met with significant pushback from lenders, with the likes of Santander and Lloyds Banking Group putting by significant amounts to cover the expected cost.
Santander UK’s former boss Mike Regnier last year called for the Government to step in, warning the compensation scheme plans could impact the car finance market and wider motor sector, leading to job cuts.
Lenders had also been calling for an implementation period, arguing they would not otherwise have enough time to prepare.
The FCA said the changes being considered for the scheme would provide a “better experience for consumers” and “help keep the cost of delivering the scheme proportionate”.
The FCA is advising those who believe they may have been mis-sold car loan deals with hidden commission to complain now to their finance provider, ahead of the scheme starting.
It stressed: “There is no need to use a claims management company (CMC) or law firm, and those who do may lose over 30% of any compensation.”
Richard Pinch, senior director of risk at banking and credit advisory firm Broadstone, said the FCA’s proposed implementation period was “sensible”.
“Firms will need time to review historic agreements, build out operational processes and ensure payments are calculated accurately, particularly where older agreements are involved,” he said.
Shanika Amarasekara, chief executive of the Finance & Leasing Association, said: “We hope to see the same proportionate approach applied to the remaining proposals so that the overall scheme, if it goes ahead, would only compensate those customers who actually lost out.”