Millions of drivers could benefit from compensation for unfair car finance deals under a new amending scheme proposed by the FCA (Financial Conduct Authority). Around 14.2 million finance agreements – approximately 44% of all loans made since 2007- were unjust. The FCA said payouts could result from 14 million motor finance agreements between April 2007 and November 2024.
FCA confirmed that a consultation and a statement regarding the suggested motor finance redress scheme will be issued shortly after the stock market closes at 4:30 pm.
According to the Mirror reports, if the scheme is approved following the consultation, it is likely to make the first payment in the next year. The FCA estimates that most individuals may receive less than 950 pounds from compensation.
The Chief Executive of FCA, Nikhil Rathi, stated in August that it was clear that some firms had violated the law and their rules. Their aim is a compensation scheme that is fair and easy to participate in.
Although the FCA has not yet confirmed the details of the maximum payouts that customers can receive, they are expected to receive an average of £ 700 per agreement.
Money-saving expert Martin Lewis stated that this is important news for anyone who bought a car on Hire Purchase or Personal Contract Purchase finance between 2007 and 2024. He further added, “The redress scheme is likely to start in early 2026”.
There are three categories of car finance mis-selling, the financial expert added. These include the first one, the big one, Discretionary commission arrangements. Here, it is hidden that the dealer is getting potentially more commission because the customer is unknowingly charged a higher interest rate.
The second one is where the dealer is contractually tied, and the commission was equal to or greater than 35% of the total cost of credit and 10% of the loan value. The third one is an unfairly high commission; in this case, the lender had exclusive rights to offer finance through a specific broker or dealership. The money expert, Martin Lewis, has described these three cases of car mis-selling.
The FCA proposes two main approaches to the car finance compensation scheme: Johnson-type cases and all other unfair cases. Johnson-type cases are rare but highly valued, where consumers whose loans closely match the Johnson Supreme Court cases. The FCA will consider these cases involving a contractual tie and a commission of at least 50% of the total cost of credit and 22.5% of the loan. These customers are likely to receive repayment of the full commission, including interest.
On the other hand, all other unfair cases involve instances where consumers receive compensation based on the average estimated loss.
In both cases, the FCA has confirmed that simple interest would be added at the average Bank of England base rate per year, including 1%, around 2.09% on present estimates.
