Millions of motorists may experience delays in receiving compensation for car finance following a legal challenge, as warned by consumer group Consumer Voice. The compensation payouts are set to cover approximately 12.1 million unfair motor finance agreements, averaging £829 each. The group is taking the unprecedented step of seeking a legal review of the Financial Conduct Authority’s compensation scheme, expressing concerns that it may inadequately compensate countless consumers.
The compensation scheme is anticipated to result in firms disbursing around £7.5 billion in compensation, which is lower than the initial estimate of £8.2 billion. The total costs, including administration, are estimated to reach £9.1 billion. Consumer Voice is planning to submit an application to the upper tribunal for a review of the scheme, stressing the need for fair and properly calculated compensatory interest to reflect the harm suffered by drivers.
According to Consumer Voice, the current scheme, influenced by the Supreme Court’s judgment in Johnson v FirstRand, excludes a significant portion of consumer complaints from receiving full commission redress. Co-founder Alex Neill emphasized the importance of delivering fair compensation to affected drivers, criticizing the scheme for potentially leaving many individuals under-compensated and failing to hold the responsible lenders accountable.
The group argued that there is no valid reason to delay compensations, while the FCA defended its scheme as the swiftest and fairest method to compensate consumers. However, James Daley of Fairer Finance cautioned that challenging the FCA’s scheme could prolong the process and impact millions of consumers awaiting payouts.
The scheme covers car finance agreements made between April 6, 2007, and November 1, 2024, involving commissions paid by lenders to brokers. Consumers may have been mis-sold if their agreements included discretionary commission arrangements, high rates or undisclosed commissions, or contractual ties not properly disclosed. The FCA estimates an average refund of £700 per agreement, with individual amounts varying based on circumstances.
In an effort to enhance payouts, the FCA revised eligibility criteria to exclude loans with low commissions or zero interest rates, resulting in fewer eligible drivers but higher compensation amounts. This adjustment aims to ensure that the scheme appropriately compensates affected individuals.