More than 12 million car finance agreements are set to receive compensation for mis-selling between 2007 and 2024, according to the Financial Conduct Authority (FCA). The FCA revealed that the number of affected agreements is actually lower than initially estimated, but the average payout per agreement has risen to approximately £830. It is anticipated that 75% of eligible consumers will file claims, potentially resulting in a total payout of £7.5 billion.
In a statement, FCA CEO Nikhil Rathi emphasized the importance of the scheme in restoring fairness for consumers and ensuring that the £7.5 billion in compensation is promptly returned to individuals. He urged widespread support for the initiative to expedite payouts, particularly as household finances face mounting pressures.
The FCA had previously projected that approximately 14 million unfair motor finance agreements could be eligible for compensation this year, estimating an average payout of £700 per agreement. The consumer advocate Martin Lewis highlighted the necessity for consumers to submit complaints to determine if they were victims of mis-sold car finance, as those who have not complained may still be eligible for compensation.
The FCA has categorized the 12.1 million mis-sold agreements into two groups based on the agreement dates, with different timelines for implementation and compensation processes. The compensation scheme was introduced following revelations that some motor dealers concealed commission earnings from lenders on car finance deals they brokered. This initiative also stemmed from a Supreme Court ruling that clarified certain issues potentially warranting further compensation.
The estimated total compensation of £7.5 billion, although lower than the initial projections, signifies one of the largest compensation schemes in the financial sector. Industry experts anticipate additional costs of around £2.8 billion for firms, bringing the total industry expenses to approximately £11 billion.
Furthermore, the FCA recently established a taskforce to address deficiencies in handling motor finance claims by select claims management companies and law firms. The compensation scheme aims to rectify instances where consumers were not informed about commission payments, leading to potential financial harm and lack of transparency in loan agreements.
