The FCA has proposed a compensation scheme that could see Brits who were mis-sold car finance compensated by an average of £700. The scheme would cover mis-sold motor finance agreements taken out between 6 April 2007 and 1 November 2024. Over the 19-year period, car dealerships pushed contracts with higher interest rates onto customers so they could earn secret commissions from the lenders, meaning that customers paid far more than necessary.
Dealerships also granted exclusive rights to some lenders, so customers purchasing a leased car were not offered a range of the best available deals. Once the proposed compensation scheme goes live, people who have already complained are likely to receive their compensation faster, according to the FCA.
The FCA estimates that drivers will be compensated by £700 on average, and lenders could be due to payout £8.2 billion in a major redress scheme.
Lenders will have to contact people who have already complained, and if they don’t hear back after one month, lenders would need to review the case.
Those who haven’t complained would be contacted by their lender within six months of the scheme starting. People will be asked if they want to opt in to the scheme to have their case reviewed. They’ll have six months to decide.
Those who don’t receive a letter – for example, because lenders no longer have their details and can’t trace them – will have a year from the scheme starting to make a claim. They will be able to do so by making a claim to their lender directly.
The FCA currently offers a template letter for customers who believe they were mis-sold car finance. Drivers can submit their complaint on the FCA’s website.
It issued a statement explaining: “Motor finance companies broke laws and regulations in force at the time by failing to disclose important information.
“This led to unfairness, with consumers denied the chance to negotiate or find a better deal and, in some instances, paying more for their loan.”
These mis-sold Hire Purchase (HP) or Personal Contract Purchase (PCP) agreements come under three categories:
- Discretionary Commission Arrangements (DCA): This practice was banned by the FCA in 2021. DCAs saw car dealers receiving undisclosed commission from lenders based on the amount of interest a customer agreed to, which meant that many people overpaid for their leased car.
- Unfair contracts: Some lenders were given exclusive rights, meaning that people who were buying a leased car were not given the proper or accurate information about the best deals out there.
- High commission rates: In some cases, the commission rates were so high for the dealers – 35 percent of the credit and 10 percent of the loan – that this has also been deemed an unfair contract by the FCA, and is estimated to impact about 2.9 million people.
