Millions of Britons who were mis-sold car loans could be in line for compensation this year, as the UK’s financial watchdog prepares to finalise rules for a redress scheme later this month.
The Financial Conduct Authority (FCA) has indicated it will likely amend its proposed compensation framework, following an extensive consultation that garnered over 1,000 responses and highlighted significant concerns within the lending sector.
However, the regulator stressed that a definitive decision on whether the scheme will proceed has yet to be made.
Should the initiative receive approval, lenders would be granted a three-month period to disburse compensation, extending to five months for older motor finance agreements. This extended timeframe acknowledges the “scale and complexity of the scheme and in response to feedback” received by the FCA.
Consumers would then be informed within three months of this implementation period concluding whether they are due compensation and the amount, with the option to accept immediately without awaiting a final determination.
The regulator also aims to streamline the process by no longer asking those who complain before the scheme starts if they wish to opt out, and will not require lenders to write to customers by recorded delivery, allowing them to contact them in other ways.
The FCA said: “If we proceed with a scheme, we are likely to make several changes.
“If we do go ahead, we expect to publish final rules in late March. The timing of publication will be outside market hours and we will confirm the date in advance.
“Even with an implementation period, streamlining the process means millions of people would receive compensation in 2026,” it added.
The FCA has been consulting on plans since it outlined a proposed compensation scheme last October that could see payouts for some 14 million unfair motor finance deals, at an average of about £700 each.
It estimated its redress scheme could cost lenders of about £11 billion once the cost of implementing the scheme and doing the work is taken into account.
Motor finance firms and lenders broke the law and FCA rules by not properly informing customers about commission paid by lenders to the car dealers that sold them the loan, the regulator has previously said.
This meant that many motorists did not have the opportunity to negotiate or find a better deal and therefore may have paid a higher interest rate for their loan.
But the regulator’s plans have been met with significant pushback from lenders, with the likes of Santander and Lloyds Banking Group putting by significant amounts to cover the expected cost.
Santander UK’s former boss Mike Regnier last year called for the Government to step in, warning the compensation scheme plans could impact the car finance market and wider motor sector, leading to job cuts.
The FCA said the likely changes being considered for the scheme would provide a “better experience for consumers” and “help keep the cost of delivering the scheme proportionate, supporting a well-functioning market for the millions of people that rely on it”.
The FCA is advising those who believe they may have been mis-sold car loan deals with hidden commission to complain now to their finance provider, ahead of the scheme starting.
It said: “Doing so means they should get any compensation sooner.
“There is no need to use a claims management company (CMC) or law firm, and those who do may lose over 30% of any compensation.”
Richard Pinch, senior director of risk at banking and credit advisory firm Broadstone, said the FCA’s proposed implementation period was a “sensible acknowledgement” of the size and scale of the scheme.
“Firms will need time to review historic agreements, build out operational processes and ensure payments are calculated accurately, particularly where older agreements are involved, to maintain consumer confidence,” he said.
