£18bn Compensation Payout for Millions of Drivers in Car Finance Scandal

Millions of drivers may receive up to £18bn in compensation from the motor finance scandal, with the Financial Conduct Authority launching a consultation on the issue. The regulator said drivers could receive payouts as early as next year, with lenders on the hook for any redress scheme. The FCA estimates that most motorists will receive less than £950, but the overall cost of the compensation scheme could be between £9bn and £18bn.

The Financial Conduct Authority (FCA) has announced plans to consult on an industry-wide scheme to compensate motor finance customers who were treated unfairly. The regulator aims to publish the consultation by early October, with the goal of finalizing the scheme and enabling consumers to start receiving compensation by next year.

The FCA's decision follows a detailed review of past motor finance practices, which revealed that many firms were not complying with the law or the disclosure rules in effect when they sold loans to consumers. The Supreme Court's recent ruling on commission payments has provided clarity on what constitutes an unfair relationship, which will guide the development of the redress scheme.

The proposed scheme will consider factors such as the size and nature of the commission, the characteristics of the consumer, and the extent and manner of disclosure. It will also address both discretionary and non-discretionary commission arrangements, with a focus on non-disclosure of these elements. The FCA has outlined principles to guide the scheme, including comprehensiveness, fairness, and cost-effectiveness.

The FCA estimates that the total cost of the redress scheme could range from £9bn to £18bn, with most motorists receiving less than £950 in compensation. The final cost will depend on the scheme's design, the take-up rate, and the mix of discretionary and non-discretionary arrangements included. The FCA expects the scheme to cover agreements dating back to 2007, ensuring a comprehensive approach.

The consultation will explore whether the scheme should be opt-in or opt-out, with the FCA advising firms to make customers aware of their potential eligibility. The regulator has also extended the deadline for firms to provide final responses to relevant motor finance complaints, aligning it with the proposed redress scheme's timeline.

The FCA's announcement underscores the importance of ensuring fairness and transparency in the motor finance market, with the aim of preventing similar issues in the future. The consultation will provide an opportunity for firms and consumers to engage with the FCA and contribute to the development of a robust and effective redress scheme.

References:

[1] https://www.fca.org.uk/news/statements/fca-consult-compensation-scheme-motor-finance-customers