Drivers could receive around £1,400 in compensation costs following a major announcement by the UK finance regulator earlier today.
The update offered a welcome update on the car finance scandal, with the Financial Conduct Authority set to introduce new measures for compensation.
The FCA revealed that it will introduce a redress scheme on the discretionary commission arrangement, which saw millions of drivers overpay between 2007 and 2021.
Despite the practice being banned in 2021, drivers have yet to see any repayments, with today’s ruling aiming to bring much-needed clarity and financial support to millions of impacted motorists.
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The discretionary commission agreement saw millions of drivers overpay between 2007 and 2021
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The watchdog explained that if motor finance customers have lost out on money through commission arrangements, they are likely to consult on a redress scheme.
The FCA stated: “If they have, we want to make sure consumers are appropriately compensated in an orderly, consistent and efficient way.
“We want to provide as much certainty as possible to firms, consumers and stakeholders. So, we are confirming that if, taking into account the Supreme Court’s decision, we conclude motor finance customers have lost out from widespread failings by firms, then it’s likely we will consult on an industry-wide redress scheme.”
The announcement comes after a Court of Appeal raised the possibility of “widespread liability” among motor finance firms wherever commissions were not properly disclosed to customers. The case is expected to be one of the biggest financial scandals in UK history, with payouts potentially exceeding £38billion.
In response to the update, money saving expert Martin Lewis explained that the FCA is currently looking at two types of compensation methods.
He suggested the first could be that all the extra interest charged due to the DCA may come back to drivers, which would typically be around £1,400 per arrangement.
In another method, the UK regulator may set up a “fair interest rate” and only refund amounts above that, although this would result in a lower payout than the first method. The Supreme Court will hear an appeal against the Court of Appeal’s judgment in a few weeks, between April 1 and 3, and based on its decision, the redress scheme will be introduced.
Lewis added: “Many expect the Supreme Court to overturn the Court of Appeal ruling on Commission Disclosure complaints. If that happens, then the redress scheme will only be set up for DCA complaints.
“This is still huge and the fact the payouts will be automatic means it would reach more people and likely be in the billions to low £10s billions (depending on payout size – more on that in a moment).”
Under a redress scheme, firms would be responsible for determining whether customers have lost out due to their failings. If they have, then they will need to offer appropriate compensation with the FCA putting checks in place to keep businesses accountable.
The FCA added: “We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive.
“It would also be more orderly and efficient for firms than a complaint-led approach, contributing to a well-functioning market in the future.”
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The FCA will announce the redress scheme based on the upcoming Supreme Court ruling
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Due to today’s intervention, the FCA said it will no longer issue a further announcement in May. Instead, it will confirm within six weeks of the Supreme Court’s decision if they are proposing a redress scheme and, if so, how they will take it forward.
The authority added that its next steps on non-DCA complaints will also be informed by the outcome of the Supreme Court case.
