Motor finance customers could be in line for payouts following the Financial Conduct Authority’s (FCA) announcement that it will consult on an industry-wide compensation scheme.
Numerous motor finance firms failed to comply with regulations or the law by withholding crucial information from customers about commission payments made by lenders to car dealers who arranged the loans, the FCA revealed.
The development follows Friday’s Supreme Court decision on cases where the FCA had intervened.
While some motor finance customers will miss out on compensation because commission payments were often lawful, the court determined that in specific circumstances, failing to properly disclose commission arrangements could be deemed unfair and therefore unlawful, the FCA explained.
Britain’s highest court concluded that car dealers lacked the type of relationship with their customers that would oblige them to act “altruistically” in the customers’ interest.
FCA chief executive Nikhil Rathi said: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.
“We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.
“Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.
“It will take time to establish a scheme, but we hope to start getting people any money they are owed next year.”
The FCA currently estimates that most eligible drivers will likely receive less than £950 in compensation. The final total cost of any compensation scheme is currently estimated to be between £9 billion and £18 billion, the FCA added.
The consultation will launch by early October. If the compensation scheme goes ahead, the first payments should be made in 2026.