Millions of consumers are set to receive compensation for over 12 million car finance agreements that were mis-sold between 2007 and 2024. The Financial Conduct Authority (FCA) announced that although the number of affected agreements is lower than initially thought, the average payout per agreement has risen to approximately £830. The FCA estimates that 75% of eligible consumers will file claims, potentially resulting in a total payout of £7.5 billion.
Nikhil Rathi, the CEO of the FCA, emphasized the importance of the scheme in returning billions of pounds to consumers and urged swift action to ensure timely payouts. The FCA had previously projected that payouts could commence on an anticipated 14 million unfair motor finance agreements this year, with an average estimated payout of £700 per agreement last October.
Consumer advocate Martin Lewis highlighted the significance of submitting complaints to determine eligibility for compensation under the scheme. The FCA has categorized the missold agreements into two groups based on the agreement dates, with the second group being prioritized in case of legal challenges.
The compensation scheme addresses the lack of disclosure by some motor dealers regarding commission earnings on finance deals, prompting the FCA’s intervention following a key Supreme Court ruling. While the anticipated payout is lower than initially estimated, it remains a substantial compensation effort within the financial sector.
The FCA introduced a comprehensive compensation scheme covering motor finance agreements from April 6, 2007, to November 1, 2024, involving lender-paid broker commissions. Eligible consumers have a limited time frame to file complaints, with lenders mandated to promptly assess and notify claimants of compensation amounts. Unclaimed compensation can be pursued until August 31, 2027.
Average compensation per agreement is estimated at around £830, inclusive of interest adjustments. The industry-wide initiative aims to rectify past injustices and restore consumer trust in the motor finance market. Industry experts anticipate additional costs to firms, potentially exceeding £11 billion in total industry expenses.
Rachael Jones, director of automotive finance at Autotrader, commended the FCA’s balanced approach to protecting consumer rights while supporting the automotive sector’s stability. She emphasized the importance of consumers understanding the compensation process and exercising caution in engaging with claims. Zoe Morton from RSM UK noted that the exclusion of some eligible individuals and the phased redress schedule may lead to extended waiting periods for affected consumers.