Financial compensation for car loans: FCA issues advisory against exploitative claim agencies as £18bn fund is at stake for consumers
The Financial Conduct Authority (FCA) has announced plans for an industry-wide compensation scheme for motor finance customers, with the scheme expected to go into effect in 2026. The proposal, published on September 7, 2023, follows a landmark ruling by the Supreme Court on motor finance cases in August.
The redress scheme, which covers agreements from the 2007 to near-2020 time frame, is estimated to involve around 30 million agreements. More than three quarters (79%) of motor finance customers are aware they may be owed compensation, and six in 10 (61%) know about a possible compensation scheme.
Not all of those agreements will be eligible for compensation, as the FCA will propose rules on how lenders should decide whether someone is owed compensation and how much. Compensation, where it is due, can start to be paid next year.
The FCA has warned consumers against using a claims management company or law firm as an expensive route to get a payout for motor finance compensation. As many as four in 10 (41%) of those aware they may be owed money didn't know they would not need to use a claims management company or law firm if a redress scheme is introduced.
Consumers who use a claims management company or law firm to make a motor finance claim could pay around 30% of any compensation paid to these firms. The FCA estimates that most individuals will receive around £950 in compensation per agreement. The total cost of the redress scheme is estimated to be up to £18bn.
The FCA's decision to consult on an industry-wide compensation scheme for motor finance customers comes after concerns that many motor finance firms have not been complying with rules or the law by not providing customers with relevant information about commission paid by lenders to car dealers.
The FCA has also warned consumers about scammers pretending to be car finance lenders and falsely claiming that people are owed compensation, despite there being no car finance compensation scheme in place yet. Consumers are advised to hang up immediately and not share any information if they receive such calls.
The FCA has required CMCs to remove or amend 396 motor finance commission promotions between January 2024 and August 2025. The consultation on the industry-wide redress program will end in early October.
In conclusion, the FCA's proposed compensation scheme for motor finance customers is a significant step towards addressing past misconduct in the industry and providing compensation to those who are owed it. It is important for consumers to stay informed and to be cautious of scams, and to remember that they do not need to use a claims management company or law firm to make a claim if a redress scheme is introduced.
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