The Financial Conduct Authority (FCA) has now shared its final decision on its long-awaited payout programme for 12.1 million motor finance agreements.
This means drivers across the UK can claim compensation for mis-sold car finance, taken out between 6 April 2007 and 1 November 2024. Thousands had already made complaints or started court claims, waiting for the FCA to complete its work with the compensation scheme having previously been delayed.
The financial regulator has said compensation will be paid out at an average of £829 each, being more or less dependent on individual cases. The FCA said courts found firms had 'broke the law by failing to disclose important information to customers'.
It said in its announcement: "Our final approach is fair for consumers and proportionate for firms. We have tightened eligibility so only those treated unfairly receive compensation.
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"We have adjusted how compensation is calculated to better reflect greater loss between 2007-2014."
The FCA added that firms are expected to pay out around £7.5 billion, down from £8.2 billion at consultation.
Nikhil Rathi, chief executive of the FCA, said: “We’ve listened to feedback to make sure the scheme is fair for consumers and proportionate for firms. It will put £7.5 billion back into people’s pockets.
“Now we need everyone to get behind it and ensure millions get their money this year. Payouts should not be delayed any longer, especially as household bills come under greater pressure.
“Delivering compensation promptly also gives lenders the chance to rebuild trust, and means we can draw a line under the past and support a healthy motor finance market for the future.”
He urged those eligible to lodge their complaints, with the scheme being the 'quickest, fairest, most cost effective way' to get compensation. Those who have already complained will apparently get their payments sooner.
Who is eligible?
Martin Lewis offers a checklist on MoneySavingExpert to figure out if you are 'likely impacted':
- Motor vehicle finance: Car, van, motorbike & campervan (not caravans).
- Eligible dates: Finance from 6 Apr 2007 to 1 Nov 2024.
- Finance types: Personal Contract Purchases (PCP) & Hire Purchase (HP) - not leased cars.
- Vehicles for personal use. Or sole trader or small partnerships for work if finance is under £25,000.
- Still applies if owner passed away, vehicle paid off or no longer owned. See claiming for deceased relative policy.
- Had multiple eligible car finance deals? You may be due multiple payouts.
Mis-sold deals
Back in 2021, the FCA banned deals where car dealers received a commission from lenders based on the interest rate charged. Known as Discretionary Commission Arrangements (DCAs), this essentially meant the interest was increased to pay the dealer or broker extra commission.
Customers often weren't told about these and would be paying too much.
Due to exclusive arrangements between car dealers and lenders, other customers may have not been given accurate information about the best finance deal available.
And some were found to be subject to unfair contracts as the commission paid to the dealer was so high. I.e. if the commission was 35 percent or more of the total cost of the credit and 10 percent or more of the loan.
Jess Battison