The Financial Conduct Authority (FCA) has proposed a compensation scheme regarding mis-sold car finance agreements, potentially affecting 14 million deals from April 2007 to November 2024. This figure represents approximately 44% of the total agreements made during this time frame. The FCA’s move follows a Supreme Court ruling that limited compensation eligibility by siding with finance companies in two out of three test cases related to undisclosed commission payments made by credit providers to car dealers.
Most new and many second-hand vehicles are financed through agreements that often include an initial deposit followed by monthly payments. In 2021, the FCA banned discretionary commission arrangements (DCAs), where dealers received commission based on the interest rates charged, often without consumers’ knowledge. The FCA has been exploring the possibility of compensating those affected by these arrangements beginning from 2007.
Under the proposed plan, the FCA anticipates average payouts of £700 per mis-sold agreement, down from earlier estimates of less than £950. This brings the total possible compensation cost to around £8.2 billion. Compensation will vary based on the level of harm experienced by consumers. Individuals with existing complaints do not need to reapply, while those without complaints will be contacted by their lenders to opt into the scheme once operational.
The financial industry is expected to bear the costs associated with this compensation scheme, with several major lenders already reserving more than £2 billion for potential payouts. Notable allocations include £1.15 billion from Lloyds Bank and £295 million from Santander.
The Supreme Court’s ruling considered whether undisclosed commission payments constituted bribery and clarified the obligations of car dealers toward their clients. The court’s decision limited the number of consumers eligible for compensation, potentially leaving many without recourse.
Source: https://www.bbc.com/news/articles/c2l9vvj097lo?at_medium=RSS&at_campaign=rss