Many motor finance firms were not complying with rules or the law by not providing customers with relevant information
Motor finance customers could be in line for payouts after the Financial Conduct Authority (FCA) announced it will consult on an industry-wide compensation scheme. Numerous motor finance firms were failing to comply with regulations or the law by withholding crucial information from customers about commission payments made by lenders to car dealers who arranged the loans, the FCA revealed.
The announcement follows Friday’s Supreme Court decision on cases where the FCA had stepped in. Whilst some motor finance customers won’t receive compensation because commission payments were often lawful, the court determined that in specific circumstances, failing to properly reveal commission arrangements could be deemed unfair and therefore illegal, the FCA explained.
Britain’s top court concluded that car dealers didn’t have a relationship with their customers requiring them to act “altruistically” in the customers’ best interests.
FCA chief executive 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.
“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.”
The FCA currently estimates that most eligible people will likely pocket less than £950 in compensation.
The regulator estimates the final bill for any compensation scheme could range between £9 billion and £18 billion. The consultation will kick off by early October.
Should the compensation scheme get the green light, the first payouts are expected in 2026.