Car finance compensation has become a trending topic in the UK recently. Numerous car buyers are expected to receive an average payout of £700 through a significant compensation scheme, reminiscent of the payment protection insurance mis-selling scandal.
The Financial Conduct Authority (FCA) has proposed an £8 billion redress scheme for individuals who were misled into purchasing car finance. Approximately 14 million unfair motor finance agreements could potentially see monetary compensation starting as early as next year.
The compensation scheme originates from the lack of disclosure regarding commissions earned by brokers, often car dealers, from lenders when arranging finance agreements. This lack of transparency led to higher costs for consumers, who were deprived of the opportunity to negotiate better deals.
The proposed industry-wide compensation scheme, subject to feedback adjustments, aims to launch in the near future. It covers motor finance agreements between April 6, 2007, and November 1, 2024, where lender commissions to brokers were involved. The FCA estimates that out of 32 million car finance agreements during this period, over 14 million were likely mis-sold, encompassing both new and used cars.
On average, individuals could receive around £700 per agreement in compensation, with the total redress estimated at £8.2 billion. Although lower than the initial projections, this scheme could still rank among the financial sector’s largest compensation programs.
Moving forward, the FCA is finalizing scheme details, with a consultation closing soon. The process will be free for consumers, emphasizing direct complaints submission to avoid excessive fees from claims management companies. Lenders will contact eligible complainants, and individuals can opt into the scheme within specified timeframes.
In cases where lenders cannot locate eligible individuals, a one-year claim period will be provided. Compensation eligibility hinges on non-disclosure of specific lender-broker arrangements, including discretionary commission, excessive commission, and lack of competitive deal shopping for buyers.
Compensation calculations will consider overpayments, lost funds, commissions, and interest differentials. The scheme aims to restore fairness by providing redress based on estimated losses, ensuring affected individuals receive due compensation.