Millions of motorists overcharged for car finance will have to wait until next year for settlements – with consultation on a proposed compensation scheme worth up to £18bn not due to launch until October.
The Financial Conduct Agency announced the development this afternoon after a Supreme Court ruling on Friday – but said it would ‘take time to establish a (compensation) scheme’.
The FCA estimates ‘most individuals will probably receive less than £950 in compensation’ per claim, with the total value of the scheme between £9bn and £18bn. Some individuals who bought several cars via hire purchase could receive multiple payouts.
Officials said they hope ‘to start getting people any money they are owed next year’.
In the meantime, the watchdog urged people to wait rather than taking action via a claims management company or law firm as it could ‘cost you a significant chunk of any money you get’.
It said it has already taken action against publishers of 225 adverts ‘about potentially exaggerated amounts of compensation’.
The FCA’s stance was today backed by Money Saving Expert guru, who told his followers on X (formerly known as Twitter) to avoid claims firms or solicitors and that ‘the most important thing is to DO nothing’.
The FCA said ‘many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans’.
It defended its action in the wake of the court ruling, saying it ‘moved quickly’ on ‘steps to set up a proposed compensation scheme because it wants to provide clarity and certainty to consumers, firms and investors as quickly as possible’.
Millions of motorists are believed to have been overcharged for car finance arrangements
But FCA officials stressed that ‘want to ensure the integrity of the motor finance market so it works well for consumers now and in the future’ and that the compensation scheme would need to ‘balance principles including fairness, timeliness, and certainty’.
Nikhil Rathi, chief executive of the FCA, said: ‘It will take time to establish a scheme but we hope to start getting people any money they are owed next year.
‘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.’
He added: ‘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.’
The FCA is working on rules to govern the finance schemes, used by 2.2m people each year, to ensure lenders ‘consistently, efficiently and fairly decide whether someone is owed compensation and how much’.
The FCA said motorists who have already complained don’t need to do anything but urged others to submit a complaint, if they think they have paid too much for motor finance.
It added it would be ‘working intensively and engaging widely over the coming weeks on the detail of how a scheme would work’.
Supreme Court found large commissions given to car dealers from finance firms were unfair
The Supreme Court’s ruling found that hidden commissions from lenders to dealers on car loans were not in themselves unlawful, excluding several million motorists from making claims.
The court said car dealers did not need to operate with a ‘single-minded’ duty to ‘act only in their customers’ best interests’ when arranging finance – and rejected a claim finance companies had bribed car dealers.
But it found the payment of particularly large commissions, without customers’ knowledge, were unfair and affected customers in those cases should be compensated.
Nikhil Rathi, chief executive of watchdog the Financial Conduct Agency
The five judges said a case where the commission was 55pc of the total charge for credit was ‘unfair’ and that a failure to disclose the ‘exact nature of the commission, and the concealment of the commercial tie between the dealer and the lender’ was wrong.
Analysts for investment bank Jefferies heralded the judgement as a ‘huge win’ for car financing firms as it means the companies can avoid a much larger compensation bill which some market experts forecasted could be as large as that for PPI (payment protection insurance). The scandal led to payouts totalling £50bn.
To make a report about potential mis-selling of car finance, visit https://www.fca.org.uk/consumers/car-finance-complaints
