MILLIONS of drivers are set for a multi-billion pound windfall after the financial watchdog green-lit a massive compensation scheme for unfair car loans.
The Financial Conduct Authority (FCA) today confirmed it is “going ahead with a scheme to compensate motor finance customers who were treated unfairly” following a landmark legal battle.
Officials estimate the total bill for firms will hit £9.1billion, with around £7.5billion of that going directly into the pockets of affected motorists.
The “final approach” covers 12.1million separate finance agreements taken out between April 6, 2007, and November 1, 2024.
Under the rules, drivers will be eligible if they were not told about specific commission “arrangements between the lender and the broker,” such as Discretionary Commission Arrangements (DCAs) which allowed dealers to hike interest rates to bag a bigger payout.
The FCA stated that “an industry-wide scheme is the quickest and most cost effective way to deliver fair compensation” compared to years of messy court battles.
In a major win for drivers, the watchdog has “adjusted how compensation is calculated to better reflect greater loss between 2007-2014” by setting a higher interest rate adjustment for older loans.
Most people due a payout can expect to see their money this year, with the rest of the claims cleared by the end of 2027.
To keep things simple, “lenders will only need to contact complainants or those due compensation,” meaning millions won’t be pestered with unnecessary paperwork if they aren’t owed a penny.
Around 90,000 “high-end” cases that align with a recent Supreme Court ruling will get all their commission back plus interest, while the average payout for others is expected to be around £829.
When plans for the redress scheme were first unveiled, around 14million car finance agreements were believed to be eligible for compensation, with payouts estimated at an average of £700 per deal.
This was expected to come at a total cost of £11billion to the industry, including the total payouts and the operational costs of running the scheme.
The watchdog had been looking into data from across some 32 million agreements made between 2007 and 2024.
The proposed scheme came after an August Supreme Court ruling on hidden commission in car finance.
While the judgment meant lenders were not automatically liable in every case, the court said that failing to properly disclose commission arrangements could, in some circumstances, be unfair and unlawful.
The FCA said that it was “clear that some firms have broken the law and our rules” and that it was “fair for their customers to be compensated”.
However, lenders and car finance providers had been challenging the FCA’s proposals with some raising concerns that the expected amount of compensation is too high and does not accurately reflect what customers lost.
