The Financial Conduct Authority (FCA) has announced plans for a redress scheme to compensate consumers affected by the car finance scandal, with payouts expected to begin in 2026. The scheme could cost banks between £9bn and £18bn, though most individual claims are likely to be under £950.
The regulator will consult on the scheme by October, focusing on discretionary commission arrangements that inflated loan costs between 2007 and 2020. These commissions, banned in 2021, allowed dealers to earn higher fees by placing customers on higher-interest loans. Around 14.6 million contracts were affected.
The FCA's plans follow a Supreme Court ruling that largely overturned a previous Court of Appeal decision, which had threatened compensation costs of up to £44bn. The Supreme Court upheld only one case as unfair, limiting the scope of potential payouts.
Liberal Democrat MP Bobby Dean described the issue as 'the biggest consumer finance scandal since PPI', warning that the compensation bill could exceed £10bn. He urged the industry to adopt honest practices going forward.
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 advised consumers not to use claims management companies, as they would take a significant cut of any payout.
The FCA will also consult on broader motor financing issues covering agreements from 2007 to 2024, potentially expanding the pool of eligible borrowers. The final scheme aims to balance consumer harm with the need to maintain a functioning car finance market.
