MILLIONS of drivers will get £700 in car finance payouts after the financial watchdog unveiled the details of a major redress scheme.
Motor finance firms will be expected to cough up £8.2billion for breaking Financial Conduct Authority (FCA) rules.
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Around 14million motor agreements taken out between April 6 2007 and November 1 2024 will be due a payout.
The FCA says lenders broke the rules by hiding important information, leaving customers unable to negotiate or find better deals, and in some cases, paying more for loans.
It also said that half of those eligible for compensation haven’t claimed yet due to confusion, but 81% say a clear scheme would encourage them to act.
The FCA wants to make the process simpler and fairer for those owed money and that’s why it’s now consulting industry wide redress scheme.
Lenders now have until November 18 to respond.
The FCA will then publish the final rules by early 2026, launch the scheme soon after, and start payments late next year.
Nikhil Rathi, the FCA’s chief executive, said: “Many motor finance lenders did not comply with the law or the rules.
“Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.
“We recognise that there will be a wide range of views on the scheme, its scope, timeframe and how compensation is calculated.
“On such a complex issue, not everyone will get everything they would like.
“But we want to work together on the best possible scheme and draw a line under this issue quickly.
“That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year.”
In August, the FCA announced plans for a redress scheme, even after the Supreme Court overturned a ruling that accused companies of failing to disclose “hidden” commission payments to borrowers.
We explain how the scheme could work.
WHAT DOES IT MEAN FOR YOU?
By Tara Evans, Head of Consumer
If you’re one of the 14 million drivers who took out a car finance deal between 2007 and 2024, then it’s worth checking if you’re due compensation.
Today, the city watchdog revealed the details of the scheme.
We explain who is eligible below – but you need to check your contracts.
If you don’t have your contract then it’s worth logging a complaint anyway.
Crucially if you complain and the firm can’t find the information then they’ll have to pay out.
Drivers will get an average pay out of around £700 per contract.
Payments won’t hit bank accounts until next year and while firms will contact customers if they are due a refund, you can speed it up by complaining now.
Don’t be fooled into getting a claims management firm or law firm to make the claim for you, they’ll take a slice of the cash.
You can do it yourself.
Who will get compensation?
Drivers who took out personal contract purchase (PCP) or hire purchase agreements before between April 6 2007 and November 1 2024 where commotion was payable by the lender to the broker.
You will only get compensation if your lender didn’t tell you about one of three arrangements:
- A discretionary commission arrangement (DCA): This is where the broker (e.g., the car dealership) had the power to adjust the interest rate offered to the customer. A higher interest rate would result in a higher commission for the broker, which the customer ultimately paid for without being informed of this incentive.
- A high commission arrangement: The FCA has defined this as a situation where the commission paid to the broker was equal to or greater than 35% of the total cost of credit and also equal to or greater than 10% of the loan amount. The failure to disclose a commission of this magnitude is considered unfair.
- A contract tie: This refers to an agreement between the lender and the broker that gave the lender exclusivity or a right of first refusal, limiting the customer’s options for credit without their knowledge.
Anyone who wasn’t told about these arrangements you should complain now.
The FCA said that drivers do not need to use a claims management firm or law firm to make a claim.
Instead, motorists can use a free template letter provided on the FCA’s website.
Once the scheme launches, lenders will revisit complaints already submitted.
If you’ve logged a claim through a claims management firm or lawyer, your claim will be included in the scheme.
However, you will have to pay them a fee from any compensation you get.
You can ask to cancel with them, but they will probably charge you a cancellation fee.
The FCA has also taken action against firms charging big fees and you can complain if you think those charges are unfair.
If you’ve already complained directly, lenders have one month to respond.
For complaints already handled by the Financial Ombudsman, further claims must go through that route instead of the new scheme.
The FCA said you could speed up getting your compensation by logging a claim now.
If you don’t make a complaint lenders will be expected to contact you within six months of the scheme starting.
How much can you get?
The FCA estimates that the average pay out will be around £700 per agreement.
However, the final amount will vary depending on the specifics of the case.
If you had more than one car finance agreement during the specified period that meets the criteria, you can claim compensation for each one.
For example, two eligible agreements could result in an average payout of around £1,400.
In a small number of very serious cases that closely resemble the details of the Supreme Court ruling in August, customers may receive the full commission amount as compensation.
However, the FCA said these cases are expected to be rare.
Simple interest will also be paid on top of the compensation amount, calculated from the date of overpayment until the compensation is paid.
How much cash have banks set aside?
Several major lenders banks have already set aside funds for claims.
In September, BMW‘s UK car finance business said it has allotted £209million.
While Close Brothers said it’s set aside £165million.
Lloyds Bank allocated £1.15 billion, Santander £290million, and Barclays £95million.
The FCA estimates the redress scheme will cost lenders £11billion in total, including admin costs.
Of this, £8.2billion is expected to go directly to consumers, assuming 85% of those eligible make a claim.
‘Pressure on us during the sale’
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RETIRED railway worker Charlie Hughes, 72, and secretary wife Jan, 67, are hoping to use their windfall for a holiday.
They overpaid on a £153-a-month five-year loan for a £10,000 Nissan Micra in 2009.
Jan, from Lincoln, said: “It was quite pressured.
“They wanted us to take out this, that and the other.”
‘We just went along with it’
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DEBBIE Hepworth, 45, could be owed thousands after taking out three car finance loans.
She and hubby James, 45, would use the payout to fund home renovations in Barnsley, South Yorks.
The mum of one said: “It would be a real bonus.
“We just went along with whatever they said at the dealership.”