Millions of individuals affected by a car finance scandal may be entitled to receive between £9 billion and £18 billion in compensation following the unveiling of potential payout arrangements. The Financial Conduct Authority has confirmed its intention to initiate discussions on a comprehensive scheme within the industry. This decision comes in response to findings that certain motor dealers, who sold vehicles on finance, were receiving commissions from the financial institutions offering the loans. These commissions were often tied to higher interest rates.
This move by the FCA follows a recent Supreme Court ruling that provided clarity on a related issue, potentially expanding the scope of compensable cases. Nikhil Rathi, the FCA’s chief executive, emphasized the importance of holding firms accountable for any legal violations and ensuring fair compensation for affected customers. The FCA aims to establish a straightforward compensation scheme that does not require the involvement of claims management companies or law firms, as these entities may charge substantial fees, reducing the amount received by claimants.
While the specifics of the scheme are still being finalized, individuals are advised to refrain from taking any immediate action. It is expected that the consultation on the operational details of the scheme will commence in October, with the first payments anticipated to be made in the upcoming year. The potential compensation scheme could involve up to 14 million eligible claimants, primarily including individuals who purchased cars on finance between 2007 and 2021.
The FCA estimates that the majority of claimants may receive less than £950 per agreement for each vehicle. Interest will also be applied to the compensation, with a proposed annual rate of 3%. Additionally, the consultations will address various aspects, such as the opt-out or opt-in mechanism for participation and the method for calculating compensation amounts.
Overall, the FCA anticipates the total cost of the compensation scheme to range between £9 billion and £18 billion, with a likely midpoint estimate around £13.5 billion. The regulatory body is carefully considering the balance between penalizing financial institutions and safeguarding lending practices to prevent adverse impacts on the economy.
