Millions of drivers could be eligible for compensation through the Financial Conduct Authority's redress scheme following a consultation into the after-effects of the car finance scandal.
The financial regulator has confirmed that 12.1 million agreements are eligible for compensation through the scheme, with firms set to fork out £7.5billion, at an average cost of £829 per agreement.
Nikhil Rathi, CEO of the FCA, explained that the compensation scheme was "proportionate" and would help millions of drivers this year struggling with the cost of living crisis.
He stated that without a scheme, firms would be charged over £6billion more to resolve liabilities, further adding to potential market concerns.
TRENDING
Stories
Videos
Your Say
What is the scope?
Drivers who took out car finance agreements between April 6, 2007, and November 1, 2024, will be considered for compensation.
Any complaints not covered in the scheme before 2007 would need to be dealt with by the Financial Ombudsman Service and through the courts.
The FCA stated that this would lead to higher costs, lengthy delays and greater uncertainty for customers trying to get compensation.
Consultation respondents issued concerns around including agreements from before 2014, prompting the FCA to split the scheme.
- April 6, 2007, to March 31, 2014
- April 1, 2014, to November 1, 2024
This is being done to ensure agreements after April 2014 are not delayed in the event of a legal challenge.
More than 12 million agreements could be eligible for the car finance compensation scheme
|GETTY
Are you eligible?
Drivers will only be considered for compensation if they weren't informed about at least one of three arrangements between the lender and broker. This includes:
- A discretionary commission arrangement (DCA) - This allowed the broker to adjust the interest rate the customer would pay to obtain a higher commission
- A high commission arrangement - This deals with at least 39 per cent of the total cost of credit and 10 per cent of the loan
- Contractual ties that gave a lender exclusivity or a right of first refusal, except where the lender can prove there were visible links with the manufacturer and dealer
READ MORE: Car finance compensation scheme confirmed with millions of drivers set to be owed £829
LATEST DEVELOPMENTS
FCA boss Nikhil Rathi praised the redress scheme, noting that it would put money back in the pockets of drivers
| GETTYAre there any exceptions?
Some exceptions have been outlined to ensure that both lenders and customers are protected. This will include:
- If the commission was £120 or less for agreements beginning before April 1, 2014, and £150 or less from that date. Any commission amounts below these levels are "unlikely to have influenced the consumer's decision or broker's behaviour".
- The borrower wasn't charged interest
- The DCA wasn’t used to earn discretionary commission
- The lender can prove, in certain limited circumstances, that it was fair not to disclose one of the arrangements above or that the consumer did not suffer any loss
When can I expect compensation?
Speaking in a briefing following the statement, Mr Rathi said there was "nothing stopping lenders moving tomorrow" and issuing compensation immediately.
However, he noted that this "wasn't likely", given that lenders will want to digest the FCA rules and ensure their systems are able to handle the scope of the scheme.
The timetables set out by the FCA are for everyone to abide by, and the regulator said they would be "pleased if firms could move much faster".
Millions of drivers are expected to be compensated this year, with the vast majority of cases being settled in January 2028.
The vast majority of drivers will have received their compensation by the end of 2027 and the beginning of 2028
|FCA
The FCA has confirmed that it has adjusted how compensation is calculated to reflect harm, while respecting the judgment handed down by the Supreme Court in August last year.
Around 90,000 agreements will receive the commission paid, which has been extended to cases involving a very high commission. This has been set at 50 per cent of the total cost of credit and 22.5 per cent of the loan.