Car Finance Compensation: Millions Due Payouts as FCA Launches Major Redress Scheme
Major Breakthrough in Car Finance Compensation Claims
Up to 14 million people are set to receive compensation payments in the hundreds of pounds each, according to the Financial Conduct Authority (FCA). The financial regulator has confirmed these details in a recent announcement to the Treasury Committee.
The Scale of the Issue
The car finance market, which facilitates over 2 million vehicle purchases annually, was previously operating under a system where brokers and car dealers could adjust interest rates on financing deals to increase their commission. This practice, known as discretionary commission arrangements (DCAs), was banned by the FCA in 2021.
According to Jonathan Davidson, Executive Director of Supervision at the FCA: “We found that some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission pay-outs for themselves. We estimate this could be costing consumers £300 million annually. This is unacceptable and we will act to address harm caused by this business model.”
The Compensation Process
Under the proposed redress scheme, financial firms will be responsible for identifying customers who have suffered losses due to their failings and offering appropriate compensation. The FCA will establish rules that firms must follow and implement checks to ensure compliance. This approach is designed to be simpler for consumers than filing individual complaints, and fewer consumers will need to rely on claims management companies, allowing them to keep their full compensation.
Important Warning to Consumers
The FCA aims to make the scheme easily accessible for consumers without requiring assistance from claims management companies (CMCs) or law firms. Importantly, consumers are warned that signing up with such companies now could result in unnecessary fees of up to 30% of any compensation received.
The mass redress scheme is currently subject to a consultation scheduled to begin in early October, with the first payments expected to be made in 2026 if the scheme proceeds as planned.
