Millions of drivers could receive a share of a multibillion-pound compensation package after the Financial Conduct Authority (FCA) announced plans for a redress scheme over the car finance scandal. The scheme, which could cost banks between £9bn and £18bn, is expected to begin paying consumers in 2026.
The FCA will consult on the scheme by October, targeting motorists harmed by discretionary commission arrangements (DCAs) banned in 2021. These arrangements allowed car dealers to earn higher commissions by placing customers on loans with higher interest rates. Approximately 14.6 million contracts between 2007 and 2020 included such terms.
Most payouts are expected to be under £950 per claim, the regulator said. The FCA also plans to consult on broader motor financing issues covering agreements from 2007 to 2024 where consumers may have been harmed by unfair commission arrangements.
The announcement follows a Supreme Court ruling that largely overturned a previous Court of Appeal decision which had suggested nearly all undisclosed commission arrangements were unlawful. The earlier ruling could have led to compensation of up to £44bn, rivalling the PPI scandal. The Supreme Court upheld only one case as unfair, due to the size of the commission and lack of disclosure.
FCA Chief Executive Nikhil Rathi stated: 'It is clear that some firms have broken the law and our rules. It's fair for their customers to be compensated.' He warned consumers against using claims management companies, as they would take a significant cut of any payout. The FCA aims to make the scheme easy to participate in without third-party help.
Liberal Democrat MP Bobby Dean called it 'the biggest consumer finance scandal since PPI', adding that 'the compensation bill is likely to surge above £10bn'. The FCA noted that while some scenarios estimate costs as high as £18bn, mid-range figures are more plausible.
