Millions of drivers are set to receive information about the highly anticipated car finance compensation scheme tomorrow. The Financial Conduct Authority has projected a potential payout ranging from £9 billion to £18 billion. Consumer advocate Martin Lewis estimates that around 14 million individuals could qualify for compensation due to undisclosed commission earnings by some motor dealers on car finance deals. The FCA’s intervention follows a Supreme Court ruling that clarified a separate issue that could further expand the scope of compensation eligibility.
If the scheme progresses post-consultation, initial payments could commence next year, with most recipients expected to receive under £950 in compensation. Nikhil Rathi, CEO of the FCA, emphasized the goal of establishing a fair and accessible compensation scheme, discouraging the use of claims management companies or law firms due to potential high fees.
Adrian Dally, director of motor financing at the Financing and Leasing Association, has raised concerns regarding the FCA’s estimated payout, questioning the basis for the £9 billion to £18 billion range without disclosed calculations. The FCA is soon expected to provide detailed calculations alongside an official statement.
While awaiting the finalization and launch of the redress scheme, affected individuals are advised to register complaints with their bank or finance company. The consultation process for the scheme’s operation will kick off soon, with initial payments slated for the following year.
The eligibility criteria for compensation may vary on a case-by-case basis, with particular emphasis on discretionary commission arrangements that could impact interest rates on loans between 2007 and 2021. The potential inclusion of other unfair arrangements under the scheme remains uncertain pending further developments.
The FCA anticipates interest payments on compensation at a rate of 3% per annum, based on the average base rate plus 1% for each year of the scheme. Details on the compensation calculation method and scheme participation options are yet to be finalized through the consultation process.
The overall cost of the compensation scheme will be contingent on its final design, with estimates ranging from £9 billion to £18 billion, although a mid-range cost around £13.5 billion appears more plausible. The regulator aims to strike a balance between penalizing banks for non-compliance and safeguarding lending practices to prevent adverse impacts on car finance costs and the economy.