Finance houses may have to pay around £700 each to 14 million consumers under a scheme being proposed by the Financial Conduct Authority (FCA).
Based on the number of consumers the FCA estimates could take part in the scheme, lenders could pay out £8.2bn
Motor finance companies 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.
Nikhil Rathi, chief executive of the FCA, 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.
The FCA is now asking for feedback. It said it wanted to deliver an easy-to-access and simple-to-deliver scheme, providing fair compensation promptly while ensuring the continued integrity of the motor finance market.
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.
Those who are concerned they weren’t told key details about their motor finance arrangement – for example, about commission payments – should complain to their lender now if they haven’t done so already.
Once the proposed scheme goes live, lenders will contact those who have already complained. If they don’t hear back after 1 month, lenders will assume they should review the case.
Those who have already complained before the scheme gets up and running are likely to receive compensation faster.
Those who haven’t complained will be contacted by their lender within 6 months of the scheme starting. People will be asked if they want to opt-in to the scheme to have their case reviewed. They’ll have 6 months to decide.
Those motor finance borrowers who don’t receive a letter – for example, because lenders no longer have their details and can’t trace them – will have a year from the scheme starting to make a claim. They will be able to do so by making a claim to their lender directly. If consumers don’t know who their lender was, there’s information on how to check on the FCA website. The FCA will run an advertising campaign to raise awareness of the scheme.
