Car finance compensation scheme worth £8.2 billion announced by FCA: are you eligible?
14 million people could be in-line for an average of £700 in compensation
The Financial Conduct Authority (FCA) has announced an official redress scheme for the UK’s car finance scandal, with 14 million people each in-line for hundreds of pounds in compensation.
Confirmed following a consultation that began back in August, the redress scheme is set to cost the industry £8.2 billion. In a statement, the FCA’s chairman, Nikhil Rathi said: “Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.”
Car finance redress scheme: the details
The FCA’s compensation scheme will see lenders forced to contact those affected within six months of its start date. The average payout is estimated to be around £700 per finance agreement; those having signed onto more than one “unfair” agreement will receive payments for each and thus will be entitled to more.
Claimants will have six months to decide whether they want to opt in to the scheme; it will automatically be assumed that those who have already complained to their lenders will want to opt in if lenders don’t hear from the complainant within a month of the scheme’s start date.
The FCA also says that if a claimant is not contacted due to the lender not storing the appropriate information, they will have one year from the scheme starting to make a claim. Consumers are notified that they can choose not to take part in the redress scheme and go to court – potentially to receive even more compensation – although success is far from guaranteed.
Avoid car finance compensation claims firms
Auto Express also warns consumers to stay away from car finance claims firms; using one of these is totally unnecessary and could see you give up a significant portion of your compensation needlessly.
Who can claim?
According to the FCA, there are three types of people who can claim:
- Those who signed up to a discretionary commissions arrangement (the issue which caused the whole debacle and which involved lenders inflating interest rates in order to give dealers more commission).
- Those who signed up to a finance deal with excessively high commission (35 per cent of the total cost of credit and 10 per cent of the loan).
- Those who signed up to an agreement that gave the broker (often the car dealer) exclusive rights to the lender.
All agreements of the types listed above must have been signed between 6 April 2007 and 1 November 2024 to be eligible.
When will I receive compensation?
The FCA has not confirmed any dates as to when the redress scheme will commence, however, it has indicated that payouts “could start next year (2026)”.
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