Up to 30million drivers could be due compensation over mis-sold car finance loans – could you be owed cash?
Table Of Content
UP to 30million drivers could be due compensation over mis-sold car finance loans, the boss of the financial regulator has said.
The Financial Conduct Authority (FCA) is preparing to consult on a redress scheme for motorists unfairly charged extra fees and interest.
1
This comes despite last month’s Supreme Court decision to overturn a ruling that had accused companies of unlawfully failing to disclose “hidden” commission payments to borrowers.
Nikhil Rathi, chief executive of the FCA, has provided an estimate of how many customers could be eligible for compensation.
He told a group of MPs on the Treasury Committee that the FCA was consulting on an industry-wide compensation scheme because there was “evidence that there have been unfair relationships between lenders and their consumers”.
He added that a “large number of consumers were not properly informed” about the interest rate on their motor finance deal.
“During the period that we’re looking it – from 2007 through to approximately 2020 – there are around 30 million agreements… but not all of those will be eligible for compensation.”
“One of the things that we are looking at very closely is what the scope of the scheme will be,” he said.
The consultation is due to be launched by early October, Mr Rathi said, adding: “We hope that compensation, where it is due, can start to be paid next year.”
The Supreme Court’s decision last month overturned a ruling that accused companies of breaking the law by not telling borrowers about “hidden” commission payments.
Claims about “commission disclosure complaints” impact up to 99% of car finance agreements.
However, the UK’s highest court sided with the banks, meaning they avoided the possibility of having to pay compensation to millions of drivers over these complaints.
Nevertheless, the FCA believes that millions of customers should still receive compensation under these circumstances.
At the same time, drivers who took out personal contract purchase (PCP) or hire purchase agreements could also be eligible for compensation.
This is because the FCA has been investigating and considering a financial redress scheme for car finance agreements made before 2021.
These claims focus on “discretionary commission arrangements” (DCAs), which applied to 40% of car finance deals.
Under DCAs, brokers and dealers could increase the interest rates charged to borrowers without informing them.
By doing this, they earned higher commissions.
This consultation is set to begin by early October, and if the scheme is approved, the first payments could be made in 2026.
The FCA estimates that most drivers would receive up to £950 for each car loan.
However, the exact amount of compensation you may be entitled to will depend on the terms of your loan and the original cost of your vehicle.
Nikhil Rathi said: “It is clear that some firms have broken the law and our rules.
“It’s fair for their customers to be compensated.
“We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.”
The regulator said the total cost of any compensation scheme will depend on the outcome of the consultation.
It estimates the cost is unlikely to be much lower than £9billion, though it could end up being significantly higher.
In some scenarios, the total cost, including administrative expenses, could even reach as much as £18billion.
Mr Rathi added: “Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm.
“If you do, it will cost you a significant chunk of any money you get.
“It will take time to establish a scheme but we hope to start getting people any money they are owed next year.”
In June, the FCA set out the principles that will guide any redress scheme.
The regulator is still deciding whether any redress scheme will be opt-in or opt-out.
However, the watchdog has made it clear that, regardless of the outcome, companies will need to contact customers directly.
Who is affected?
Drivers who took out personal contract purchase (PCP) or hire purchase agreements before January 28 2021 could be eligible for compensation.
These motorists may have been impacted by “discretionary commission arrangements” (DCAs), which were in place for 40% of car finance deals before this date.
Under DCAs, brokers and dealers could increase the interest rates charged to drivers without informing them, allowing them to earn higher commissions.
The FCA banned DCAs in January 2021.
As a result, anyone affected by these arrangements before the ban could now be entitled to compensation.
You likely won’t be able to claim compensation for car finance agreements taken out before April 6 2007, as this is when the Financial Ombudsman began handling motor finance complaints.
Between 2007 and 2020, around 14.6million car finance agreements were made under DCAs.
However, the FCA has said that even drivers who took out deals without DCAs could still be eligible for compensation if excessive commission was involved.
This could also mean that drivers who signed agreements after 2021 might be entitled to compensation, depending on the circumstances.
Compensation claims will be assessed on a case-by-case basis.
Households with multiple vehicles could make more than one claim. For example, a household could receive two payments of £950 each, totalling £1,900.
What does it mean for you?
By Tara Evans, Head of Consumer
Millions of drivers will likely still be in line for compensation despite Friday’s landmark judgement – but the payouts will be lower and not as many people will qualify for them.
Despite the judgement banks will still be responsible for any claims relating to discretionary commission arrangements (DCAs).
This is where drivers were charged excessive interest – and the higher they were the more commission they earned.
Those applied to around 40% of car finance deals.
The FCA has now said that it wants to launch a car finance compensation scheme for drivers affected by this issue.
The city watchdog is still considering whether it should be an opt-in or opt-out scheme.
The scheme launching is subject to a consultation which is expected to launch in October.
Any compensation payments will likely start being paid in 2026.
What should I do?
You can still lodge a claim while we wait for the FCA to decide on how its redress scheme will look.
If you think you should be compensated, consumer finance website MoneySavingExpert.com has a free email template to help you complain to your finance provider.
You can also complain directly to your provider without using the template.
Anyone who took out car finance and could be eligible should file a claim, even if their previous one was denied.
In your complaint, ask whether you were overcharged due to your broker receiving a commission and ask the company to rectify this if it happened.
If you are not happy with the company’s response then you can escalate your complaint to the Financial Ombudsman Service for free.
You have until July 29, 2026, or up to 15 months from the date of the company’s final response letter to do so, whichever is longer.
Meanwhile, MoneySavingExpert founder Martin Lewis has warned against drivers signing up with car finance claims.
He said: “If you sign up to a claims firm now you have to give it a cut even if it does nothing.”
No Comment! Be the first one.