Motor finance consumers can expect to receive an average £700 payout from a lawyer-less compensation scheme being set up by regulators. The Financial Conduct Authority estimates that millions of car owners could be eligible for compensation, with lenders set to pay out £8.2bn in total.
The FCA said it has tried to strike a balance between providing fair compensation through an easy-to-use-scheme and ensuring the continued integrity of the motor finance market. But the estimated amount is well short of what some law firms say consumers should receive, and smaller than the figure of £950 given by the FCA in August after the Supreme Court established that some borrowers should receive compensation.
Nikhil Rathi, FCA chief executive, said: ‘We recognise that there will be a wide range of views on the scheme, its scope, timeframe and how compensation is calculated. On such a complex issue, not everyone will get everything they would like. But we want to work together on the best possible scheme and draw a line under this issue quickly. That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year.’
The scheme would be free to use and is designed so that consumers will not need to go through the courts or incur legal fees by engaging with a law firm or claims management company.
It was established by the court that motor finance companies broke laws and regulations in force at the time by failing to disclose information about commissions, which stopped them negotiating or finding a better deal and in some cases paying more for their loans.
The scheme would cover motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker.
People can submit their own complaint using a template letter on the FCA’s website, with the regulator monitoring if lending firms are meeting the scheme’s rules. Payouts could start as early as next year, the regulator said.
Lawyers have poured scorn on the figures being talked about by the FCA and the way compensation prospects are being gradually scaled down.
Kavon Hussain, of Consumer Rights Solicitors, who represent over a third of the FCA’s estimated complaints with firms, said: 'This is yet another kick in the teeth for consumers. The regulator has known for years that banks have been misleading consumers about commissions in motor finance and yet there’s been no mention of fines or repercussions for the industry at large.
'Instead, the FCA wants to let the lenders self-report the unfair commission amounts they paid, when they have already shown they cannot be trusted to be fair with the consumer. It’s like letting a known cheater mark their own homework.”
North west firm Bott & Co, one of many practices continuing to offer motor finance redress services, welcomed the clarity provided by the FCA’s statement but questioned why sums are lower than had been expected. In a statement, the firm said: ‘The true measure of success will be whether it delivers meaningful compensation that reflects the real financial harm suffered by consumers. The average payout figure of £700 per agreement raises serious questions about whether the scale of redress will match the severity of wrongdoing.'
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