- Published
Millions of drivers who were mis-sold car finance agreements must wait until at least 2027 to receive compensation, regulators have announced.
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regulators → publish → compensation
Average payments of about £829 are expected under the rules published by the Financial Conduct Authority (FCA).
However, legal challenges to the scheme - which will be heard in February 2027 -mean compensation calculations and payments have been delayed.
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calculations → expect → February
Who could receive car finance compensation?
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Who → receive → compensation
The vast majority of new cars, and many second-hand ones, are bought with finance agreements.
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majority → buy → agreements
Customers pay an initial deposit to secure the vehicle, then a monthly fee with interest.
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Customers → pay → interest
Compensation could be given to many of those who took out a car loan between April 2007 and November 2024.
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who → give → April
The decision by the FCA, the financial regulator, applies to about 12 million car loans - just over 40% of the total number during the period.
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decision → apply → period
In 2021, the FCA banned deals where car dealers received commission from lenders, based on the interest rate charged to the customer.
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dealers → ban → customer
These were known as discretionary commission arrangements (DCAs) and customers were often not told about them.
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customers → know → them
The FCA said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate, leaving them paying too much.
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buyer → say → much
Other car buyers were also judged to have signed unfair contracts because the commission paid to the dealer was so high - accounting for at least 35% of the total cost of credit and 10% of the loan.
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commission → judge → loan
Some customers were not given accurate information about the best finance deal because of exclusive arrangements between car dealers and lenders.
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customers → give → dealers
How much compensation could victims receive?
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victims → receive → compensation
Under the latest proposals, the FCA expects average payouts of £829 per mis-sold agreement.
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FCA → expect → agreement
The total cost of the compensation, including administrative costs, could hit £9.1bn.
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cost → include → £
How much individual consumers receive will depend on the degree of harm suffered.
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receive → receive → harm
For some customers - especially if their contact details have changed - it could take many months before compensation is paid.
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compensation → change → months
What do victims need to do to claim compensation?
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victims → need → compensation
Complaints have already been made about four million finance agreements.
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Complaints → make → agreements
Those people do not need to do anything.
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people → need → anything
The regulator urged anyone who has not yet complained to contact their car loan provider directly, rather than using a third-party claims management company.
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who → urge → company
The regulator's central compensation scheme allows people to complain and potentially receive compensation for mis-sold deals without the need for a lawyer or to go through the courts.
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people → allow → courts
Motorists have also been warned to be on the alert for scammers posing as car finance lenders offering fake compensation.
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Motorists → warn → compensation
The FCA has published this guidance on how to complain, external.
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FCA → publish → guidance
Under its plans:
lenders will respond to claims, explaining if you are owed compensation and how much – but timing of those letters is now uncertain owing to the legal challenge
those who complain before the scheme gets up and running are likely to receive compensation faster
people who complained by 30 June and are not owed compensation should be told by 18 November, those who complained by 31 August will be told if they are not owed compensation by 18 January 2027
those who have not complained will be contacted by their lender.
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who → respond → lender
People will be asked if they want to opt in to the scheme to have their case reviewed
those motor finance borrowers who do not receive a letter - for example because lenders no longer have their details and cannot trace them - can still make a claim
Regulators have warned claims management companies and law firms involved in motor finance commission claims to make sure consumers do not have multiple representatives for the same claim and are not charged excessive termination fees.
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consumers → ask → fees
FCA boss Nikhil Rathi told the BBC's Today programme there are "many law firms out there who would like to get 30% of any compensation", stressing that the regulator's scheme was "free to use" for consumers.
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scheme → tell → consumers
When will drivers receive compensation and who will pay?
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who → receive → compensation
Millions of drivers were in line to receive compensation this year, and most of the remainder should have got compensation by the end of 2027.
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most → receive → 2027
But the FCA has confirmed that no compensation will be paid before 2027 as a result of legal challenges to the scheme.
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compensation → confirm → scheme
Consumer Voice said the scheme left "too many people short-changed".
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scheme → say → people
The FCA has also received challenges from three lenders: Volkswagen Financial Services, Mercedes Benz Financial Services, and Credit Agricole Auto Finance.
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FCA → receive → lenders
The UK's Upper Tribunal has agreed to hear legal challenges to the scheme, with a hearing scheduled for 16 to 26 February.
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Tribunal → agree → February
It means that lenders will no longer need to calculate or pay compensation to people owed money under its scheme, until the legal process concludes.
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process → mean → scheme
The FCA said it would need to decide what to do next if the courts decided to overturn the programme.
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courts → say → programme
Without a scheme in place, the FCA has estimated that up to 19 million complaints would need to be handled individually, taking three years and costing lenders £6bn more.
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complaints → estimate → more
It said it would "defend the scheme robustly as lawful and the best way to resolve such a widespread, long running and complex issue".
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it → say → issue
Ultimately, the industry is expected to cover the full costs of any compensation scheme, including any administrative costs.
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industry → expect → costs
Lenders - including some of the UK's biggest banks and specialist motor finance firms - have already set aside billions of pounds for potential payouts.
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Lenders → include → payouts
The body that represents the lending industry, the Finance and Leasing Association, said it had "concerns" about the programme but that it was choosing not to raise a legal challenge.
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it → represent → challenge
…and 6 more, not listed.
The Aporia
