Kevin PeacheyCost of living correspondent
Millions of motorists should be paid compensation next year for the mis-selling of car loans, the UK’s financial regulator has told MPs.
The payouts are over commission arrangements between lenders and dealers, and inaccurate information given to car buyers following a ruling by the UK’s highest court.
While the Supreme Court decision limited the breadth of these cases, up to 30 million agreements between 2007 and 2020 could be reviewed. Not all of those will be eligible for compensation.
The Financial Conduct Authority (FCA) has said a finance redress scheme is yet to begin but it is planning an awareness campaign explaining how the payouts will work, who is eligible and how they can claim.
Giving evidence to MPs on the Treasury Committee, Nikhil Rathi, chief executive of the FCA, said details of the scheme were still being worked through, such as whether claimants would need to opt-in or be included automatically.
“It will be pragmatic, proportionate and fair to all sides,” he said.
The FCA said claimants were likely to get less than £950 per deal.
Following the recent court cases, those eligible are likely to include:
- Many of the 14.6 million agreements under so-called discretionary commission arrangements, in which the dealer received a commission from the lender based on the interest rate charged to the customer
- Other car buyers who had an unfair contract because the commission paid to the dealer was so high
- Buyers who were not given accurate information about getting the best finance deal
But he added that not all firms involved were being cooperative with the regulator as it planned the compensation scheme.
He was pressed by the committee chair, Dame Meg Hillier, on exactly which firms were “playing hardball”, but they have yet to be named.
During the huge compensation scheme that followed the payment protection insurance (PPI) scandal, the regulator’s awareness scheme featured the robotic head and voice of Terminator star Arnold Schwarzenegger.
By the end of that scheme, 34 million consumers received an average of about £1,000 each after being mis-sold PPI.
However, in comparison to the PPI compensation scheme, fewer people will be eligible under the motor finance mis-selling redress, but it is still likely to cover millions of drivers.
The FCA said some claims management companies (CMCs) had overblown the payouts that could be made to drivers.
It has intervened in some 400 promotions by CMCs, asking for them to be removed or amended, since 2024, with 171 changed since the Supreme Court judgement in July.
But the FCA was challenged by committee member Bobby Dean about how much the regulator had consulted with law firms that exposed the saga.
Lawyers claimed payouts in the court could average £1,800.
Mr Nikhil said it had consulted widely and would continue to do so.
