Compensation payouts on about 14 million unfair motor finance deals could start next year under the Financial Conduct Authority's proposed scheme. The average payout would be about £700 per customer.
The FCA estimated its redress scheme could cost lenders £8.2 billion in total compensation, based on about 85 per cent of eligible consumers taking part. This figure assumes most affected customers will participate in the compensation programme.
The watchdog has lowered its previous projections significantly. The FCA had earlier estimated costs between £9 billion and £18 billion, and previously suggested drivers could receive less than £950 per deal.
Investigation spans 17 years
Motor finance firms broke the law by not properly informing customers about commission payments. These commissions were paid by lenders to car dealers who sold the loans to customers.
This meant many motorists did not have the opportunity to negotiate or find a better deal. As a result, they may have paid higher interest rates for their loans than necessary.
The watchdog has been examining data from about 32 million agreements made between 2007 and 2024. The investigation covers nearly two decades of motor finance arrangements.
FCA chief responds
The FCA believes setting up a free compensation scheme will be easier and quicker for customers to access. The authority also expects it to be more cost-effective for firms by removing much legal and administrative work.
Nikhil Rathi, the FCA's chief executive, said: "Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it's time their customers get fair compensation."
Rathi acknowledged the scheme would face criticism but emphasised the need for swift resolution. He said: "We want to work together on the best possible scheme and draw a line under this issue quickly. That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year."
Sources used: "PA Media" Note: This article has been edited with the help of Artificial Intelligence.
