Millions of drivers mis-sold car finance to receive average £829 in compensation
Millions of drivers mis-sold car finance to receive average £829 in compensation
The Financial Conduct Authority (FCA) has proposed a compensation scheme that could see millions of motorists who were incorrectly sold motor finance agreements get an average of £829 per person. This initiative, expected to cost lenders £9.1bn in total, aims to reduce the number of eligible cases from initial estimates of 14.2 million to 12.1 million. The majority of new vehicles and many used ones are typically purchased through such financing arrangements.
Under the plan, £7.5bn is earmarked for consumers who qualify, with administrative expenses projected to reach £1.6bn. While the FCA hopes for industry support, some lenders have raised concerns about the scheme’s scope. The Finance and Leasing Association (FLA) argued that the broad criteria might include individuals who didn’t actually suffer financial harm, emphasizing the need for precise identification of affected customers.
“We have always been clear that where consumers suffered loss, redress must be paid,” said FLA chief executive Shanika Amarasekara. “But any redress scheme for a market of this size must accurately identify and compensate only those customers who genuinely suffered loss.”
Consumer advocates, however, believe the scheme falls short. “Millions of people were overcharged, and our research shows some were pushed into real financial difficulty,” remarked Alex Neill, co-founder of Consumer Voice. “This was the regulator’s chance to put that right, but it instead appears to have let lenders off the hook.”
The issue spans a lengthy period, covering car finance deals from April 2007 to November 2024. Fletcher Mumford, who has been pursuing compensation for over two years, described the process as frustrating. Despite multiple attempts to contact his lender, he said he received generic responses and limited information from customer service representatives.
“It has been two years and that does feel like a very long time to come to some sort of idea or decision,” Mumford told BBC Radio 5 Live. He highlighted the delays in resolving claims, even as the FCA announced a new phase to streamline the process.
Many of these agreements involved discretionary commission arrangements (DCAs), where dealers received fees based on the interest rates charged to buyers. The FCA noted these arrangements often led to higher rates for consumers without proper disclosure. In 2021, the regulator banned DCAs, stating: “We need to draw a line under the past and support a healthy motor finance market for the future.”
Consumers may also qualify for compensation if they were not informed about two additional arrangements between lenders and dealers. The central scheme allows individuals to file complaints and claim redress without legal representation or court involvement, though some may still opt for litigation. Major lenders have allocated significant funds to cover the costs, though questions remain about the FCA’s authority to handle agreements prior to 2014.
Before April 2014, the Office for Fair Trading regulated consumer finance, and the FCA has since clarified it holds the power to include older deals in the scheme. To provide legal protection, the compensation plan is divided into two periods: one covering agreements from 6 April 2007 to 31 March 2014, and another for deals from 1 April 2014 to 1 November 2024.
The FCA added that delays in redress for the later period should not affect those with agreements from 2014 onward, should the earlier timeframe face legal scrutiny. This phased approach is intended to give firms time to process claims efficiently.
