Britain’s financial watchdog has said millions of people with motor finance commission misselling claims will receive compensation this year.
In an update on Wednesday, the Financial Conduct Authority (FCA) said it was likely to make several changes to the proposed compensation scheme after receiving more than 1,000 responses to its consultation on the proposals.
A final decision on the plans is expected to be published by the regulator later this month, with the watchdog still finalising the details.
But, the FCA added, if and when the scheme gets the green light, it expects to give lenders a three-month implementation period to pay out compensation, with up to five months for older motor finance agreements.
Consumers would be told within three months of the end of the implementation period whether they are owed compensation and how much, but could then accept immediately without waiting for a final determination, according to the FCA.
The FCA said on Wednesday: ‘Even with an implementation period, streamlining the process means millions of people would receive compensation in 2026.’
The long-running dispute centres on commissions paid by lenders to car dealerships when they offered loans to motorists.
The regulator and courts said the commissions were inadequately disclosed to consumers and incentivised the charging of higher interest rates. Including administration costs, the redress scheme is expected to cost lenders £11billion in total.
The watchdog urged anyone concerned that they were not told about commission involved in their motor finance deal to complain now, which should mean they’ll receive compensation sooner.
The regulator said there was no need for motorists to use a claims management company or law firm to claim, claiming that those who do may lose over 30 per cent of any compensation.
Richard Pinch, senior director of risk at Broadstone, said the changes sought to strike the ‘right balance’ between ensuring customers receive any compensation they are owed and ‘maintaining a proportionate cost for firms, which is important for the long-term functioning of the motor finance market.’
The UK’s top banks were thought to have been granted some reprieve earlier this year after the Supreme Court upheld two out of three appeals from lenders in the landmark car finance scandal.
But the second half of the year brought a series of twists and turns in the saga, with the FCA unveiling plans for a contentious redress scheme that led to banks significantly upping their provisions for payouts.
One of the main areas of criticism for the FCA’s scheme rests on the assessment of ‘unfair’, the criteria the Supreme Court upheld in the one successful claimant’s case.
Alex Neill, co-founder of Consumer Voice said on Wednesday: ‘It’s a victory for common sense that drivers who have already complained about motor finance will be automatically included in the scheme and receive a prompt offer of compensation.
‘Allowing lenders more time to process older complaints will only be justified if they play fair and use the extra time to do everything possible to locate the paperwork and contact customers.
‘Further changes need to be made to the scheme to ensure consumers aren’t short-changed. We are calling on the FCA to automatically include all other affected consumers through an opt-out approach and increase the compensation and compensatory interest levels to accurately reflect the true level of harm.’
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