Thousands of motorists who bought cars on finance before 2021 could be set for payouts after a regulator said it will consult on an up to £18bn compensation scheme.
The Supreme Court ruled on Friday that hidden commissions from lenders to dealers on car loans were not unlawful, meaning millions of motorists will not be able to claim.
But the judgement left open the possibility of compensation claims for particularly large commissions which the court said were unfair.
Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), 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 estimated that most individuals will probably 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.
It will launch the consultation by early October. If the compensation scheme goes ahead, the first payments should be made in 2026.
Bobby Dean MP, a member of the Treasury Select Committee, said: “The degree to which people were ripped off was shocking. Some stung for thousands of pounds.
“Industry tried to claim the customer was happy when they pulled off the drive, so no harm done. But this covers up the important difference between buying the car and securing the finance for it.
Consumers are savvy. They shop around online to check out the price for cars. They do the same when buying car insurance. But if your car dealer appears to have no skin in the game and offers to organise the finance for you, you don’t expect to get ripped off. But this is exactly what happened. Dealers were not up front about their commissions and took advantage.”
On Friday, the court overturned a ruling that would have meant millions of motorists could have been due compensation for over “secret” commission payments made to car dealers as part of finance arrangements.
The FCA’s case concerns discretionary commission arrangements (DCAs) – a practice banned in 2021.
Under these arrangements, brokers and dealers increased the amount of interest they earned without telling buyers and received more commission for it.
This is said to have then incentivised sellers to maximise interest rates.