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 unveiled a proposal for a compensation scheme that could see millions of drivers who were incorrectly sold motor finance agreements receive an average of £829 each. The plan, which will cost lenders a combined £9.1 billion, aims to reduce the number of eligible loan deals from an initial estimate of 14.2 million to 12.1 million. This adjustment is expected to streamline the process for identifying cases where customers were overcharged.
Industry and Consumer Groups React
The scheme has sparked debate, with the Finance and Leasing Association (FLA) arguing it is overly broad. “Where consumers suffered loss, redress must be paid,” stated 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.” Meanwhile, consumer rights group Consumer Voice criticized the plan as insufficient. “Millions of people were overcharged, and our research shows some were pushed into real financial difficulty,” said co-founder Alex Neill. “This was the regulator’s chance to put that right, but it instead appears to have let lenders off the hook.”
Under the proposal, consumers will also be compensated if they were not informed about two other arrangements between lenders and car dealers. The FCA’s central compensation scheme allows individuals to file complaints and seek redress without legal representation or court involvement. However, some may still pursue legal action to ensure their claims are fully addressed.
A Long-Standing Issue
The issue dates back to April 2007, with the FCA addressing it in 2021 by banning discretionary commission arrangements (DCAs). These DCAs, where dealers received fees based on the interest rates charged to buyers, were often not disclosed, incentivizing higher costs for customers. The regulator emphasized its goal to “draw a line under the past and support a healthy motor finance market for the future.”
Consumers with agreements from April 2007 to November 2024 will be covered, but the FCA has divided the scheme into two periods for legal clarity. The first period, from 6 April 2007 to 31 March 2014, will be reviewed separately from deals after April 2014. Some lenders have questioned the FCA’s authority to handle pre-2014 agreements, as the regulator only took over consumer finance oversight in April 2014. Prior to that, the Office for Fair Trading managed the sector.
Fletcher Mumford, a driver affected by the issue, shared his frustration after two years of trying to reclaim mis-sold finance. “I get a generic email saying that they’ve got a high volume of people contacting them at the moment,” he said on BBC Radio 5 Live. “But when I phone them I get through to a person who can’t really tell me any information.” Mumford expressed hope that the new announcement would expedite the process, though he noted: “It has been two years and that does feel like a very long time to come to some sort of idea or decision.”
Major lenders have allocated tens of millions of pounds to cover compensation costs, but the scheme’s implementation is set to begin soon, giving firms time to process claims. The FCA has stated that this period will help ensure a fair and efficient resolution for affected customers.
