The FCA has announced a compensation scheme for the victims of car finance mis-selling. They draw one conclusion that I suspect will shock many—each impacted driver can expect an average payout of about £700. This smart development is only the latest step in our long-running campaign to address dangers in the auto finance market. For far too long, customers have been misled on the most advantageous financing options to pursue. The FCA’s move could lead to lenders paying up to £8.2 billion in compensation.
The FCA’s original calculation left motorists with the expectation of payouts averaging under £950 per agreement. New independent evaluations backtracked and lowered the average payout estimate to £700. The plan aims to increase protection on the two million car finance contracts sold each year. Even worse, many of these deals include hidden dealer commissions that substantially inflate costs for consumers. In extreme examples dealers pocketed a whopping 35% of the total cost of credit or 10% of the loan value in commission. This practice is highly problematic and raises significant ethics concerns around transparency within the industry.
The reality is that most car buyers could not find reliable information on the best finance deals. Much of this confusion was rooted though by exclusive rights given to certain lenders. This flagrant act of malfeasance has ignited outcry across the nation demanding accountability and justice from the car finance industry. In 2021, the FCA really made a stand against these malpractices. They prohibited allowances that let dealers make more money by charging customers higher interest rates.
Affected motor finance borrowers now have a six month period in which to make the decision to join the FCA’s compensation scheme. He or she will need to promptly respond as requested – those who receive notice will have one year from the scheme’s start date to submit a claim. Victims who submitted complaints ahead of the scheme’s start are likely to see their pay-out processed faster.
“The average payout figure of £700 per agreement raises serious questions about whether the scale of redress will match the severity of wrongdoing.” – David Bott
The FCA has emphasized that the success of this compensation initiative will hinge on delivering meaningful restitution that accurately reflects the financial harm suffered by consumers. David Bott, a representative from the FCA, articulated their fears. He asked if the average payout as proposed addresses the magnitude of harm and wrongdoing that has occurred on our roads and bridges.
“The true measure of success will be whether it delivers meaningful compensation that reflects the real financial harm suffered by consumers.” – David Bott
As the compensation scheme unfolds, lenders are tasked with reaching out to customers who have not yet filed complaints within six months of the program’s initiation. This intent behind this proactive strategy is to make sure every person harmed knows their rights and can seek suitable compensation.
