The Financial Conduct Authority (FCA) has proposed a new compensation scheme for millions of individuals who may have been affected by mis-selling in car finance agreements. This could impact around 14 million motor finance agreements made between April 2007 and November 2024. While initial estimates suggested compensation could be less than £950 per deal, the FCA has revised this figure to an average of approximately £700, with potential total payouts from lenders reaching £8.2 billion.
The compensation is intended to address issues related to commission arrangements between lenders and dealers, unfair contracts, and the provision of inaccurate information to car buyers. Nikhil Rathi, the FCA’s chief executive, acknowledged that opinions on the proposed scheme’s scope and compensation calculations will vary, emphasizing the complexity of the issue.
The scheme aims to be accessible to consumers without any associated costs. A recent Supreme Court ruling has limited the extent of such cases, which could impact the number of claims made under the new scheme. In the context of car purchases, it is noteworthy that a significant portion of new and used cars are bought with financing, with approximately two million transactions occurring each year.
In 2021, the FCA prohibited discretionary commission arrangements—where dealers received commissions based on interest rates charged to customers—due to concerns that these practices could lead to consumers overpaying for loans. The proposed compensation scheme would involve lenders reaching out to individuals with existing complaints, while also addressing those who have not yet filed claims. Specifically, lenders will follow a timeline for contacting borrowers and reviewing cases, and consumers will have the option to either participate in the FCA’s scheme or pursue legal action if they choose.
Consumers who opt not to participate in the compensation scheme may pursue court claims, which could result in varying compensation amounts depending on individual cases.
Source: https://www.bbc.com/news/articles/cqlzwqv7xz1o?at_medium=RSS&at_campaign=rss