MILLIONS of drivers will get £700 in car finance payouts after the financial watchdog unveiled the details of a major redress scheme.
Motor finance firms will be expected to cough up £8.2billion for breaking Financial Conduct Authority (FCA) rules.
Today the city watchdog has revealed its plan for a car finance compensation scheme[/caption]
The FCA said lenders broke laws and regulations in force at the time by failing to disclose important information.
This led to unfairness, with consumers denied the chance to negotiate or find a better deal and, in some instances, paying more for their loan.
Lenders now have until November 18 to respond.
It plans to publish the final rules by early 2026 and hopes to launch a scheme shortly after that, with payments beginning later next year.
In August, the FCA announced plans for a redress scheme.
This came after the Supreme Court overturned a ruling that accused companies of failing to disclose “hidden” commission payments to borrowers.
The Supreme Court sided with lenders and this meant they avoided paying out to millions of drivers over hidden commission payments.
But the FCA decided that millions of drivers could still be owed compensation because of contracts that had “discretionary commissions arrangements” (DCAs).
A DCA is where a broker and dealer could increase interest rates for drivers and the broker and dealer could earn higher commission by doing so.
Many banks have already set aside funds for claims.
In September, BMW’s UK car finance business said it has allotted £209million.
While Close Brothers said it’s set aside £165million.
Lloyds Bank allocated £1.15 billion, Santander £290million, and Barclays £95million.
Who will get compensation?
Drivers who took out personal contract purchase (PCP) or hire purchase agreements before between April 6 2007 and November 1 2024 where commotion was payable by the lender to the broker.
Anyone who wasn’t told about key details such as commission payments should complain now.
The FCA said that drivers do not need to use a claims management firm or law firm to make a claim. They have a template letter on their website for motorists to use.
Lenders will look at claims where drivers have already complained once the scheme is launched.
The FCA said you could speed up getting your compensation by logging a claim now.
But lenders will contact drivers who haven’t complained within six months of the scheme starting.
You will only get compensation if your lender didn’t telling you about one of three arrangements:
- A discretionary commission arrangement, where the broker could adjust the interest rate and get higher commission which the customer paid
- A high commission arrangement
- A contract or tie between the lender and broker, which meant the customer had to go to the lender to get credit
How much can you get?
The FCA has now said that most drivers would get £700 for each car loan.You could apply for multiple loans during the period.
