Millions of motorists are set to receive information about the highly anticipated compensation program for car finance starting tomorrow. The Financial Conduct Authority (FCA) has projected a potential payout ranging from £9 billion to £18 billion. A consultation and statement regarding a proposed motor finance redress scheme will be released after the stock markets close.
Consumer advocate Martin Lewis estimates that around 14 million individuals could qualify for compensation due to undisclosed commission earnings by certain motor dealers on car finance transactions. The FCA’s intervention follows a Supreme Court ruling that could potentially expand the number of eligible recipients for compensation.
If the scheme progresses post-consultation, initial payments could commence next year, with the FCA anticipating most individuals to receive compensation of less than £950. FCA’s Chief Executive Nikhil Rathi emphasized the importance of a fair and accessible compensation scheme to eliminate the need for third-party claims management companies or law firms, which could significantly reduce the compensation received.
Adrian Dally, director of motor financing at the Financing and Leasing Association, has raised concerns about the FCA’s estimated payout, questioning the validity of the projected figures. While uncertainties remain about the final details of the scheme, the FCA aims to ensure simplicity and fairness in participation without the involvement of claims management companies or legal assistance.
Potential claimants are advised to file complaints with their banks or finance providers if they believe they have been affected. The consultation process for the scheme’s operation is expected to begin soon, with the possibility of the first payments being disbursed in the following year.
The eligibility criteria for compensation may vary depending on individual circumstances, with discretionary commission arrangements likely playing a crucial role in determining qualification. The FCA’s estimation of compensation being below £950 per person still stands, with interest to be included in the payout based on a specified rate for each year of the scheme.
The final structure of the scheme, whether opt-out or opt-in, will be determined through the consultation process. Moreover, the calculation methodology for compensation is yet to be finalized, with the total cost of the scheme estimated to be within the £9 billion to £18 billion range.
The regulatory authorities are balancing the need for accountability without impeding banks’ lending capabilities or escalating future car finance costs, which could have ripple effects on manufacturers and the economy.
