- Compensation is due on around 12.1 million mis-sold motor finance deals, says Financial Conduct Authority (FCA)
- Average payout expected to be £829 – higher than was previously trailed but to a lower number of people
- The cost to lenders including implementing the scheme is estimated to be £9.1 billion
Danni Hewson, AJ Bell head of financial analysis, comments on the FCA’s motor finance redress scheme:
“For millions of motorists today’s decision from the FCA finally brings them one step closer to getting compensation for car finance they were mis-sold. The payouts will average at £829, with some people in line for more than one round of compensation.
“Those who have already filed a claim should get compensation more quickly than those yet to make contact with their lender, but the FCA has laid out a framework for all motorists owed compensation to be contacted in the next few months.
“Buying a car is often the biggest purchase people make outside of a home, and the process can be stressful and confusing. Once you’ve picked the vehicle you want the next step is working out if you can afford it, and many people never look past the monthly payments to consider how much interest they will be paying or whether there might be a better deal out there.
“The FCA is demanding more transparency from lenders going forward and discretionary commission arrangements have already been banned. But without the option of finance most people would struggle to find the cash to fund vehicle payments and there have been concerns that lenders could limit the products made available to motorists if compensation costs spiralled.
“The tightening of criteria by the FCA will keep compensation payouts to £7.5 billion, down from the £8.2 billion that had initially been reported during the consultation process. Lenders will only be required to contact motorists who are due compensation, which will also help keep down the cost of managing compensation schemes.
“Finding the paperwork from loans dating back to 2007 might be impossible for many people and some may be tempted to use claims management companies which will take a chunk of the total compensation payout. But putting the onus on lenders to contact those owed compensation should remove the need for motorists to use third parties and the FCA has also set out plans for a taskforce to monitor those companies already handling claims to protect consumers.
“There are still fears that scammers will now rush to exploit the situation and people should be careful when receiving emails or text messages which call for quick action in relation to making a claim.
“Under the scheme, eligible motorists should get compensation this year. However, there is still the potential that further legal action from either lenders or complainants could delay the process.”
