Millions of Car Finance Victims Could Share £9billion in Compensation

Strategic Insights -

The Financial Conduct Authority has announced plans for an industry-wide compensation scheme for victims of a car finance scandal, which could see up to 14 million people share £9billion to £18billion in payouts. The scheme follows evidence that some motor dealers selling cars on finance were getting commission from the bank or finance house providing the loan, and that the size of the reward could be linked to higher interest rates.

Key Takeaways:

  • The Financial Conduct Authority will launch a consultation on an industry-wide compensation scheme for victims of a car finance scandal.
  • Up to 14 million people could be eligible for compensation, although it may depend on a case-by-case basis.
  • The scheme could cost between £9billion to £18billion, with a more plausible estimate of £13.5billion.
  • The FCA aims to make the scheme "easy to participate in, without needing to use a claims management company or law firm."
  • The consultation on how the scheme will work will begin in October, and the first payments are expected to be made next year.
  • Consumers who think they have been wronged should put in a complaint to their bank or finance firm.
  • The scheme is unlikely to cost banks much, but could potentially be passed on to car buyers through higher interest rates.

Statistics:

  • Up to 14 million people could be eligible for compensation (Source: Martin Lewis, cited in the article).
  • The scheme could cost between £9billion to £18billion (Source: FCA, cited in the article).
  • The FCA estimates that most people will receive less than £950 in compensation (Source: FCA, cited in the article).
  • Interest is normally paid on compensation, with the FCA planning to consult on an interest rate for each year of the scheme (Source: FCA, cited in the article).
  • The FCA thinks the bill for the whole scheme, including to run it, would be unlikely to be much lower than £9billion (Source: FCA, cited in the article).

Sources:

  • The Financial Times
  • BBC News
  • Martin Lewis, consumer champion
  • Financial Conduct Authority (FCA)