Millions of drivers to receive £700 in compensation from car finance mis-selling scandal
Around 14 million victims of mis-sold car finance could receive £700 in compensation - around £150 less than previously expected...
It's expected that 14 million drivers across the UK could be entitled to £700 in compensation if they were mis-sold car finance, under a scheme proposed by the national financial regulator.
The scheme, brought forward by the Financial Conduct Authority (FCA), which regulates the financial services industry in the UK, will aim to compensate buyers who took out 'unfair' car finance deals between April 2007 and November 2024.
Previously, the FCA had estimated that victims could receive less than £950 per deal, but it now estimates payouts could average at around £700 per agreement. An estimated £8.2 billion in compensation could be paid out by lenders.
Consumers will be able to access the FCA's scheme directly and for free, without the need to speak to third-party claims management providers.
This comes after a Supreme Court ruling in August that stated car finance deals with hidden commissions from lenders to dealers were not unlawful, overturning a a decision that could have led to tens of billions in payouts to victims of these deals.
However, the court upheld a decision that granted compensation to a claimant who had paid particularly large commissions and had entered into an 'unfair' relationship with the lender. This means that there is potential for victims to claim where the situation was unfair, such as where interest rates were not properly disclosed.
Nikhil Rahti, chief executive of the FCA, 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."
According to research conducted by the FCA, 46% of those aware of possible compensation, but who had not yet made a claim, cited uncertainty about whether their claim would be eligible. However, 81% of those considering making a claim said a compensation scheme would make them more assured to do so.
What Car? consumer editor Claire Evans says, "It's good news that 44% of the people who bought cars in hire purchase (HP) and personal contract purchase (PCP) deals over the last 17 years will be eligible for compensation.
"While the average £700 payout may not seem huge, it equates to roughly 17% of the interest paid, so for every £1000 in interest you'll get £170 back.
"We recommend that people should apply directly to their previous finance company if they have their details, or wait for the scheme to open early next year when there will be other simple ways to apply. We advise against using a claims management company because it could take up to a third of any money you're awarded."
How will the scheme work?
The scheme will cover buyers who took out car finance agreements between 6 April 2007 and 1 November 2024 in which commission was payable by the lender to the broker.
The FCA advises that customers who weren't informed of key information about their agreement (for example, about commission payments) should complain to their lender now. Guidance on how to complain can be found on the FCA's website.
While some claims management or law firms are offering to make complaints on behalf of potential victims, these customers are able to submit their own complaint to their lender via the FCA website using the template letter provided. The FCA warns that customers who go through a claims management or law firm may end up losing a significant amount of the compensation they're owed through legal costs.
Once the scheme goes live – expected at some point next year – affected customers who have already complained will be contacted by their lender. Those who haven't complained will be contacted by their lender within six months and given six months to decide to opt-in to the scheme.
Those who aren't contacted within six months will have a year to make a claim directly to their lender.
Compensation will only be given under the scheme if the buyer wasn't told details of at least one of three arrangements between the lender and broker: a discretionary commission arrangement; a high commission arrangement (35% of the total cost of credit and 10% of the loan); or a contractual agreement or tie between the lender and broker which provided exclusive or near exclusive rights to lenders to provide credit.
The FCA confirmed it will monitor firms under the scheme and take action if they are not meeting the rules.
The scheme is set to cover agreements dating back to 2007, with the responsibility falling on firms to make customers aware where they may be eligible and what they need to do.
Customers may choose not to take part in the FCA's scheme and take their case to court instead, where the amount of compensation they receive will be based on the facts of their case.
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