Facing potential reparation plan due to car financing controversy, as hope for payouts surges among drivers
A potential compensation scheme is being planned by the Financial Conduct Authority (FCA) for motorists who bought cars on finance before January 28, 2021, and were affected by undisclosed discretionary commission arrangements (DCAs).
Motorists who are concerned they may have been mis-sold car finance due to DCAs should contact their car finance company in writing to check if a discretionary commission arrangement was involved in their agreement. This is crucial because brokers or dealers could have increased the interest rate without informing the consumer, resulting in paying more interest than expected.
To check eligibility for the potential compensation scheme, motorists can:
- Confirm whether their car finance agreement involved DCAs by writing to their finance provider.
- Use free reclaim tools provided by organizations like MoneySavingExpert.com, which also offers guides and case updates.
- Stay informed about the FCA's consultation on the compensation scheme, as it will outline eligibility criteria and the payout process.
The FCA estimates the cost of any compensation scheme to be no lower than £9bn, with a total cost of £13.5bn being "more plausible". Motorists are advised against using claims management companies, as compensation may be paid automatically, and such firms typically take a large percentage of the payout.
The FCA's review of motor finance sales has shown that many firms were not complying with the law or disclosure rules. Nikhil Rathi, chief executive of the FCA, stated that some firms have broken the law and their rules, and it's fair for their customers to be compensated.
It's unclear how many people could be eligible for a payout, but the FCA estimates most individuals will probably receive less than £950 in compensation. The FCA's case concerns DCAs, a practice that was banned in 2021.
The Supreme Court's ruling could extend any compensation scheme to non-discretionary commission arrangements. Non-disclosure of other facts relating to commission can make the relationship between a salesperson and buyer unfair, according to the FCA.
Rathi also emphasized the need to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal. The announcement comes after the Supreme Court ruled on a separate, but similar, case on Friday.
The FCA plans to consult on a compensation scheme for thousands of motorists who bought cars on finance before 2021. The consultation will be published by early October, and any scheme will be finalised in time for people to start receiving compensation next year.
[1] MoneySavingExpert.com, "Car finance scandal: What you need to know", https://www.moneysavingexpert.com/reclaim/car-finance-scandal/
[2] Financial Conduct Authority, "FCA proposes redress scheme for consumers who were mis-sold car finance", https://www.fca.org.uk/news/press-releases/fca-proposes-redress-scheme-consumers-were-mis-sold-car-finance
[3] BBC News, "Car finance scandal: FCA proposes £9bn compensation scheme", https://www.bbc.co.uk/news/business-58731410
- The proposed compensation scheme by the Financial Conduct Authority (FCA) for motorists affected by undisclosed discretionary commission arrangements (DCAs) in car finance is estimated to cost no less than £9bn, with a more plausible total cost of £13.5bn.
- The FCA's review of motor finance sales has shown that non-disclosure of other facts relating to commission can make the relationship between a salesperson and buyer unfair, potentially affecting policies and legislation in the financial and business sectors, as well as general news.
- In politics and policy-and-legislation discussions regarding car finance practices, it's important to ensure that consumers can continue to rely on fair deals in the future, as emphasized by Nikhil Rathi, chief executive of the FCA.
