Millions of individuals affected by a car finance controversy could potentially receive between £9 billion and £18 billion in compensation following the announcement of plans for a potential compensation program.
The Financial Conduct Authority (FCA) has disclosed its intention to initiate a consultation on an industry-wide initiative. This decision comes in light of evidence suggesting that certain car dealers receiving commissions from banks or finance companies providing loans may have been associated with higher interest rates.
The FCA’s action follows a recent Supreme Court ruling that clarified a separate issue, potentially expanding the scope of individuals eligible for compensation. It is essential to note that individuals who believe they have been wronged should file a complaint with their bank or finance provider.
Nikhil Rathi, the FCA’s chief executive, emphasized the necessity for fair compensation for customers affected by unlawful practices. The FCA aims to establish a straightforward compensation scheme without the need for claims management companies or law firms, which could significantly reduce the amount recipients receive.
While the specifics of the scheme are still being finalized, the FCA highlighted that individuals should refrain from engaging claims management companies or law firms, as these entities could claim up to 30% of the compensation in fees. The consultation on the scheme’s operational details will commence in October, with the first payments anticipated to begin next year.
The potential compensation scheme, which could result in payments to eligible individuals, is estimated to be under £950 per agreement for each car purchased. The FCA plans to consult on an interest rate structure for the scheme, likely averaging 3% per annum based on the average base rate plus 1% for each year.
As the consultation progresses, considerations such as the compensation calculation methodology and the total cost of the scheme, estimated between £9 billion and £18 billion, will be crucial factors. The regulator is balancing the need for accountability with the impact on lending and the economy.
In addition to the car finance scheme, a separate compensation program involving Mastercard is set to disburse £200 million to customers. The consultation process will further determine the eligibility criteria and operational framework of the scheme, ensuring transparency and fairness.