Millions of car finance customers to get payouts this year as FAC ahead with compensation scheme
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Millions of motor finance customers will receive compensation this
year under a Financial Conduct Authority (FCA) scheme for those
treated unfairly by firms that broke the law by failing to
disclose important information. Consumers were denied the
chance to seek a better deal and, in some instances,
paid more for their loan. The FCA has made several changes
to the free-to-use scheme in response to conflicting...Request free trial
Millions of motor finance customers will receive compensation this year under a Financial Conduct Authority (FCA) scheme for those treated unfairly by firms that broke the law by failing to disclose important information. Consumers were denied the chance to seek a better deal and, in some instances, paid more for their loan. The FCA has made several changes to the free-to-use scheme in response to conflicting feedback from consumers, their representatives, firms, manufacturers and industry bodies.
This ensures it is fair for consumers
and proportionate for firms. The eligibility criteria have been
tightened, 12.1 million agreements made between 2007 and 2024 are now eligible for compensation, fewer than under the FCA's original proposals. The average payout has increased to around £830 per agreement. The FCA estimates that 75% of eligible consumers will make a claim. If so, total redress paid would be £7.5bn. 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. “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. 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.” An industry-wide scheme is the most efficient way of compensating affected consumers while supporting the ongoing availability of competitively priced motor finance for millions who rely on it. Without such a scheme, the cost to lenders of dealing with complaints through the Ombudsman or courts is estimated to be over £6bn higher. How the scheme will work Motor finance loans taken out between 6 April 2007 to 1 November 2024 are covered. There will be a short implementation period so firms can prepare. This will be up to:
Lenders will have 3 months from the end of the implementation period to inform complainants whether they're owed compensation and how much. This means that people who have already complained or who complain before the end of the relevant implementation period will be compensated sooner. Lenders will only contact people who haven't complained if they are likely to be owed money. They have 6 months from the end of the relevant implementation period to do so. This avoids unnecessary and potentially confusing communication with people who won't get compensation. Anyone not contacted has until 31 August 2027 to make a claim. Claims for high value loans - amounts higher than 99.5% of other loans that year - are not covered by the scheme, which is designed for the mass market. These consumers can still complain to firms and the Financial Ombudsman Service. People will only be compensated if they were not told clearly that either:
There will be some exceptions, with cases considered fair, if:
Where the commission was very high (50% of the total cost of credit and 22.5% of the loan) and another relevant factor of unfairness existed, consumers will receive the commission paid. For most people compensation will be made up of 2 parts, the average of:
Consumers should not be put back in a better position than they would have been had they been treated fairly or than those who suffered the most unfairness, so in around 1 in 3 cases, compensation will be capped. Interest will be paid on compensation, based on the annual average Bank of England base rate per year plus 1%, at a minimum of 3% in any year. The FCA has established a dedicated supervisory team, led by a Director, to monitor if firms are meeting the scheme's rules and act if they're not. If people disagree with their firm's decision, the Financial Ombudsman will be able to assess whether the scheme rules have been followed. The FCA has also joined with the Solicitors Regulation Authority, Information Commissioner's Office and Advertising Standards Authority to launch a taskforce to tackle poor handling of motor finance claims by some claims management companies (CMCs) and law firms. The taskforce is the latest measure by regulators to improve standards. The FCA has already removed or amended 800 misleading adverts, over 28,000 consumers have been able to exit contracts free of charge, and 3 CMCs reduced their high fees, protecting over 500,000 consumers. Consumers can choose not to take part in the FCA's compensation scheme and instead go to court, where they may get more or less compensation, based on the facts of their case. However, the outcome of a court claim is uncertain and accounting for legal fees they may pay, many consumers could end up with less. The FCA's scheme is also likely to be faster and simpler. Advice for motor finance customers
Notes to editors
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