Millions of motorists who were victims of improperly sold car finance loans may be entitled to compensation in the coming year. Nikhil Rathi, CEO of the Financial Conduct Authority (FCA), disclosed that approximately 30 million car finance agreements were executed between 2007 and 2020, but not all will qualify for compensation.
The FCA is investigating discretionary commission arrangements (DCAs) where brokers and car dealers boosted interest rates on loans to earn more commission. Some motor finance firms failed to adequately inform customers about these commissions, leading to a potential redress scheme for affected drivers.
Rathi informed a group of MPs that a significant portion of these agreements likely violated disclosure laws, resulting in unfair relationships with consumers. The FCA plans to launch a consultation by early October, aiming to initiate compensation payments next year.
The regulator advises drivers against using lawyers or claims management firms to file complaints, encouraging direct contact with the lender for a free resolution process. The FCA cautions against misleading advertisements promising high compensation amounts, emphasizing that the average redress is expected to be in the hundreds, not thousands of pounds.
The estimated total cost of the compensation scheme ranges between £9 billion and £18 billion, involving around 38 motor finance firms in the UK. This development follows a Supreme Court ruling that absolved lenders of responsibility for hidden commission payments, distinct from the ongoing FCA investigation into DCAs.
