Britain's Largest Compensation Scheme for Motor Finance Deals Launched

Strategic Insights -

Millions of drivers who bought cars on finance may be entitled to payouts of nearly £1,000 as part of a massive compensation scheme, following a City regulator's announcement to launch a consultation on how to compensate those affected by wrongful commission payments. The scheme is estimated to cost between £9 billion and £18 billion, and will cover approximately 25.9 million motor finance deals arranged between 2007 and the end of 2020. The Financial Conduct Authority (FCA) urges individuals who may have paid too much due to undisclosed commission payments to complain now, without needing to use claims management companies or law firms.

Key Takeaways:

  • The proposed compensation scheme is estimated to cover 25.9 million motor finance deals, with 14.6 million including discretionary commissions.
  • The FCA estimates that most individuals who qualify for compensation will receive less than £950.
  • Finance firms are liable for commissions deemed excessive and unfair, despite a Supreme Court ruling dismissing central elements of an earlier judgment that said hidden commissions on car loans were unlawful.
  • The scheme is estimated to cost between £9 billion and £18 billion.
  • Nikhil Rathi, FCA chief executive, aims to start distributing payouts to customers by next year.
  • Individuals do not need to use claims management companies or law firms to register their claim, and those who have already complained do not need to take further action.
  • The compensation scheme will include discretionary commissions that were not properly disclosed to customers.

Statistics:

  • 25.9 million motor finance deals arranged between 2007 and the end of 2020 will be covered by the compensation scheme.
  • 14.6 million motor finance deals included discretionary commissions.
  • The estimated cost of the scheme is between £9 billion and £18 billion.
  • Most individuals who qualify for compensation will receive less than £950.
  • The punishment for excessive and unfair commissions is still in place for finance firms, as per the FCA.

Sources:

  • The Financial Times: "Millions of car buyers could get £1,000 payouts after City regulator launches compensation scheme"
  • The Supreme Court of the United Kingdom
  • The Financial Conduct Authority (FCA)