Millions of drivers will get a payout (Image: Getty)
Compensation payouts are due on around 12.1 million unfair motor finance deals, at an average of £829 each, the Financial Conduct Authority (FCA) has said. The finance watchdog said millions of motorists who were mis-sold a car loan between 2007 and 2024 will be eligible for compensation, after it was found that firms “broke the law by failing to disclose important information to customers” and that an “industry-wide scheme is the quickest and most cost effective way to deliver fair compensation”.
The FCA’s announcement on Monday came as it unveiled the final plans for its redress scheme, and added that the payout is expected to be around £7.5billion – down from the £8.2billion at consultation – while the administrative cost of the scheme is forecast to reach £1.6bn. The total bill for firms is estimated to be £9.1billion. Nikhil Rathi, chief executive of the FCA, said: “We’ve listened to feedback to make sure the scheme is fair for consumers and proportionate for firms. It will put £7.5 billion back into people’s pockets.
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Those who have already complained will get their payments sooner, the FCA’s CEO said (Image: PA)
“Now we need everyone to get behind it and ensure millions get their money this year. Payouts should not be delayed any longer, especially as household bills come under greater pressure,” Mr Rathi added. “Delivering compensation promptly also gives lenders the chance to rebuild trust, and means we can draw a line under the past and support a healthy motor finance market for the future.”
Those who have already complained will get their payments sooner, the CEO said, encouraging eligible consumers to lodge their complaints now, while advising that this does not require using a law firm or claims management company.
The vast majority of new cars and many second-hand ones – about two million a year – are bought with finance agreements, with customers paying an initial deposit, then a monthly fee with interest for the vehicle. Discretionary commission arrangements between lenders and dealers were banned in 2021. After tightening the criteria following consultation, some 12 million agreements will be considered unfair and due compensation.
The FCA previously said payouts could result from 14 million motor finance agreements taken out between April 2007 and November 2024 – amounting to about 44% of the total number during this period. However, a Supreme Court ruling last August reduced the scope of compensation when it ruled in favour of finance companies in two of the three crucial test cases it considered.
12.1 million agreements are now eligible for compensation, at an average of £829 each (Image: Getty)
Rachael Jones, director of automotive finance, Autotrader, said: “We support this pragmatic and proportionate approach from the FCA that strikes the right balance between ensuring robust protection and transparency for consumers, while underpinning the stability of an automotive sector that contributes billions to the UK economy every year.
“It’s vital that this scheme doesn’t inadvertently impact a market that has adapted and is now working well for consumers.
“Modern car buyers expect transparency and choice and we’ve long made finance details highly visible on more than 300,000 vehicles advertised on Autotrader to help build consumer confidence and trust.
“Most buyers rely on finance to fund their next car purchase and so it is vital this sector can continue to help them access the vehicles they want.”
Meanwhile, the CEO of Nielsen Car Group, Anders Nielsen, told BBC Radio 5 Live that the scheme announced today by the FCA is a “long time coming”. People “just wanted clarity” on the compensation scheme, he said, adding that drivers do not have to do anything immediately to seek payouts. “The onus is on the lenders to contact the customers,” he said.