Car finance scandal could see millions of drivers receive compensation after fresh update

It stems from the FCA banning the practice of discretionary commission arrangements (DCA), which saw lenders allow dealers to adjust interest rates on financing deals to get a higher commission.

This practice was banned in 2021, although many drivers have complained that companies failed to tell motorists about the commission arrangements before the ban, with Britons losing out.

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The case reached the Supreme Court, which heard the case in April, with a judgement expected to be given in July.

The regulator stated that it would confirm within six weeks of the Supreme Court judgement whether a redress scheme would be proposed, and if there would be a consultation.

The original decision found that several car finance schemes were unlawful. If this verdict is upheld, millions of drivers could receive compensation.

Under an FCA redress scheme, the regulator would set rules for how firms can assess claims and calculate the level of compensation given out.

READ MORE: Martin Lewis offers hope for drivers ahead of Supreme Court's car finance scandal decision

In its latest update, it clarified that if a redress scheme is to be introduced, it will make the process simple, without needing to use a claims management company (CMC) or law firm.

It warned that drivers who sign up with a CMC or law firm may lose up to 30 per cent of their award, as they do not need the service.

Any redress scheme must meet the terms of legal tests, including that there has been a "widespread or regular failure to comply with requirements".

This could include consumers who have suffered loss or damage for which a court would grant a remedy, or the FCA finds it "desirable" to introduce a redress scheme.

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The FCA said it would publish a consultation seeking views from stakeholders if it decides to go ahead with a redress scheme.

Under an opt-in redress scheme, customers would have to confirm to their firm that they wish to be included, although some drivers may be unsure of whom they had agreements with.

An opt-out scheme would see customers automatically included. This could reduce speculative claims, and be more expensive and take longer to implement for firms.

Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA), said the group acknowledged the FCA's statement regarding key considerations.

She added: "We are actively engaging with the FCA, including participation as a stakeholder in the Consumer Redress Scheme Design Panel, to ensure the views and interests of our members are clearly represented.

"NFDA will continue to monitor developments closely, as we await the upcoming Supreme Court decision, and keep members informed."

Several major lenders have already set aside hundreds of millions of pounds to deal with a potential redress scheme.

While potential compensation figures have been suggested by industry experts, the FCA said it may take a different approach to calculating redress in any intervention.

It added that any redress scheme must be fair to consumers who have lost out, but ensure the integrity of the motor finance market.