Millions of drivers will receive a huge update on the car finance mis-selling scandal later today, which could determine how much they are owed in compensation and when this could be received.
The Financial Conduct Authority (FCA) will confirm its approach to the compensation scheme after markets close later today (Monday, March 30).
This follows a months-long consultation last year that looked into how a compensation scheme could be rolled out for drivers who were charged more for their car finance so lenders and dealers could receive a higher commission.
While this commission agreement practice was banned by the FCA, there are fears that 14 million finance agreements were impacted between April 2007 and November 2024.
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Based on estimates, the FCA suggests that drivers could receive an average of around £700 per agreement, at a total cost of £8.2billion in compensation.
Many firms have already set aside hundreds of millions of pounds in anticipation of a huge settlement scheme for drivers who were affected by the misselling action.
The £8.2billion figure is based on an 85 per cent participation rate, while firms could owe up to £9.7billion if 100 per cent of eligible customers take part in the redress scheme.
At an 85 per cent uptake rate, the FCA forecasts that it would cost £2.8billion to implement and operate the scheme, taking the total cost to £11billion.
Drivers are expected to receive a huge compensation update on the car finance scandal later today
|GETTY/PA
Nicola Pangbourne, Kennedys partner, warned that financial institutions should "assume" that a compensation scheme will be in place and would be "costly" to implement.
She continued, saying: "Many financial institutions will have been preparing to implement the scheme already.
"In particular, many will have commenced the significant and challenging task of obtaining and processing the data and ensuring sufficient staffing to execute the scheme."
Research from the FCA found that 41 per cent of drivers who have had a motor finance agreement and know about possible compensation were unaware that they didn't need to use a claims management company (CMC) or law firm.
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The FCA is overseeing the response to the car finance scandal | PA It comes as a new taskforce has been established to tackle the poor handling of motor finance claims by some CMCs and law firms.
The taskforce will be managed by the FCA, Solicitors Regulation Authority (SRA), Information Commissioner's Office (ICO) and Advertising Standards Authority (ASA).
The groups will share intelligence to crack down on firms looking to take advantage of drivers part of the potential redress scheme.
They warn that motorists who opt to make use of a CMC or law firm could lose up to 30 per cent of any compensation they may be entitled to, and could lose even more if they go through the courts.
Many firms have already set aside hundreds of millions of pounds in anticipation of a compensation scheme
| GETTYDan Jones, Executive Director of Transformation and the SRA's taskforce lead, said customers needed to have confidence in the redress system, adding that it was a "great example" of how regulators can protect motorists.
Similarly, Alison Walters, Director of Consumer Finance and FCA taskforce lead, said: "Our scheme will be free and people don’t need to use a CMC or law firm.
"Should they decide to so, it's important that they can trust CMCs and law firms to act in their best interests.
"This taskforce will ensure we deal with problems quickly and act decisively."