Millions of vehicle owners who have been affected by improperly sold car finance agreements may be entitled to compensation in the upcoming year. The head of the financial regulatory body provided an update on the potential number of eligible claimants and the timeline for payouts.
Nikhil Rathi, the CEO of the Financial Conduct Authority (FCA), disclosed that approximately 30 million car finance contracts were executed between 2007 and 2020. However, not all individuals will qualify for compensation as per the FCA’s assessment.
The compensation scheme is centered around discretionary commission arrangements (DCAs) utilized by brokers and car dealers to inflate interest rates on car loans for higher commissions. The FCA revealed that some motor finance companies failed to adequately notify customers about these commission structures and is considering a redress scheme for affected drivers.
It is estimated that around 14.6 million DCA car finance agreements were made during the specified period, with a subset involving undisclosed high commissions potentially becoming eligible for compensation. Mr. Rathi informed a group of MPs that not all 30 million agreements would meet the compensation criteria.
Emphasizing the need for transparency and fairness, Mr. Rathi highlighted that a significant number of agreements likely violated disclosure laws, resulting in unjust terms for consumers. The FCA intends to launch a consultation by early October, aiming to initiate compensation payouts in the following year.
The FCA advises affected drivers against engaging lawyers or claims management firms for complaints, urging them to directly contact the lender responsible for their car finance. The regulatory body cautioned against misleading advertisements promising exorbitant compensation amounts, stating that realistic redress figures are expected to be in the hundreds rather than thousands of pounds.
The FCA anticipates that the total cost of the compensation scheme could range between £9 billion and £18 billion, involving numerous motor finance firms in the UK. This initiative follows a recent Supreme Court decision that absolved lenders of liability for undisclosed commission payments in car finance agreements, distinct from the ongoing DCA investigations by the FCA.