Millions of drivers could receive hundreds of pounds in compensation as the UK's financial regulator outlines the plan for the aftermath of the car finance scandal.
The Financial Conduct Authority is proposing a scheme that would see £8.2billion given out to support victims of the compensation scheme receive around £700 each.
It is expected that 14 million unfair motor finance agreements will be eligible for the scheme, with payments potentially starting next year.
Motor finance companies were found to have broken the law by not providing sufficient information to motorists, which could make them liable to pay more for their deal.
Motor finance agreements taken out between April 6, 2007, and November 1, 2024, where commission was payable by the lender to the broker, are eligible.
Stuart Masson, Editorial Director of The Car Expert, welcomed the scheme, calling it "good news" for millions of motorists who may have been impacted.
He added: "Despite the numbers being somewhat less than those being thrown around in July before the landmark Supreme Court ruling (estimates of £40billion+), this scheme still sends a very clear signal that banks and finance companies will not be allowed to take advantage of their customers.
"Ultimately, this scheme has the potential to bring closure to what has been a long-running and damaging issue in the car finance industry.
READ MORE: Car finance scandal compensation scheme announced as millions of drivers could be owed £700
The car finance compensation scheme could see drivers receive £700
|GETTY
"But the real scandal is that these unfair agreements were allowed to run for so long in the first place."
While consumers can choose not to take part in the FCA's compensation scheme, this would see them go to court, where they could receive more or less money.
This is likely to be an unpopular decision since the outcome is uncertain, and drivers would need to pay legal fees, leaving them with a lower amount of compensation.
The chief executive of the FCA, Nikhil Rathi, said the scheme was "vital" to ensure the motor finance market can continue to serve millions of drivers annually.
The FCA urged drivers to not use third party firms to claim compensation for the car finance scandal | PALATEST DEVELOPMENTS:
Around 44 per cent of all agreements made since 2007 will be considered unfair because they fall into one or more qualifying factors, including:
- A discretionary commission arrangement
- High commission (where the commission is equal to or greater than 35 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
The FCA said it is inviting feedback on the proposed definition of high commission, clarifying that this only applies for the redress scheme and should not impact other retail financial services.
The FCA is the UK's primary financial services watchdog | PA The regulator estimates that around 85 per cent of eligible consumers would take part in the scheme, resulting in the £8.2billion redress total.
In the event that 100 per cent of drivers were involved in the scheme, firms would owe £9.7billion, while this would be lowered to £6.8billion if uptake was 70 per cent.
Commenting on the FCA's announcement, Shanika Amarasekara, CEO of the Finance and Leasing Association (FLA), expressed concerns that the costs are too high.
She highlighted that the 360-page document from the FCA would require scrutiny to assess the best way to get redress for customers who lost out, while keeping the car finance sector stable and competitive.