The Financial Conduct Authority (FCA) has been accused of shortchanging victims of the car loan commissions scandal by proposing an interest rate of 2.09% on compensation, a rate described as 'insulting' by claims firms and consumer groups. The regulator estimates that up to 14 million historic car loan contracts may be unfair, with total compensation costs reaching £11bn.
Critics argue that the proposed rate is far lower than the commercial rate awarded in a landmark Supreme Court case in August, where the sole driver is believed to have received around 7% interest. Consumer advocates say that if the FCA proceeds, borrowers could miss out on over £4bn in additional compensation, based on figures in the FCA's own consultation documents. At 2.09%, the average payout would be about £700, compared to £1,030 at an 8% rate.
Darren Smith, managing director of Courmacs Legal, said: 'The FCA's proposal to cap interest at 2.09% is frankly insulting to the millions of victims who were overcharged, many well over a decade ago.' He accused lenders of hypocrisy, noting they would demand full commercial rates in similar disputes. Kevin Durkin of HD Law, who represented the Supreme Court claimant, added that the scheme should reflect the commercial rate awarded to his client.
Consumer Voice co-founder Alex Neill said the proposed rate is 'unacceptable' and would leave drivers losing out on billions. However, the Financing and Leasing Association (FLA) supported the FCA's approach, noting it aligns with recent cuts to the Financial Ombudsman Service's rate to base rate plus 1%. An FCA spokesperson said: 'Our proposals take account of court decisions on redress. We believe interest that links to the Bank of England base rate is fair, proportionate and aligns with the ombudsman.'
