The FCA has issued a redress scheme update for millions of people who took out car finance between 2007 and 2021.
The Financial Conduct Authority (FCA) has said it will consult on an “industry-wide redress scheme” within six weeks after the Supreme Court hears an appeal against the Court of Appeal’s judgment on April 1 -3. The City regulator is reviewing historical Discretionary Commission Arrangements (DCAs) in the motor finance market and whether millions of vehicle owners who took out car finance could be owed compensation.
Consumer champion Martin Lewis has previously estimated that compensation of around £1,100 could be due on around 40 per cent of all car finance deals between April 2007 and January 28, 2021. This means anyone who took out finance with the ‘hidden DCA charge’ to purchase a van, campervan or motorcycle during that period, may be entitled to a refund.
In an update on Tuesday, the FCA said: “We are currently reviewing the past use of motor finance discretionary commission arrangements (DCAs). We’re seeking to understand if firms failed to comply with requirements relating to DCAs and if consumers lost out as a result. If they have, we want to make sure consumers are appropriately compensated in an orderly, consistent and efficient way.”
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The FCA said that when it launched its review last year, a ruling by the Court of Appeal has “raised the possibility of widespread liability among motor finance firms wherever commissions were not properly disclosed to customers”.
The regulator continued: “The Supreme Court will hear an appeal against the Court of Appeal’s judgment on 1 to 3 April. We have been granted permission to intervene in the case and have filed our submission with the Court.
“We want to provide as much certainty as possible to firms, consumers and stakeholders. So, we are confirming that if, taking into account the Supreme Court’s decision, we conclude motor finance customers have lost out from widespread failings by firms, then it’s likely we will consult on an industry-wide redress scheme.
“We previously said it is more likely than when we started our review that we will introduce an alternative way of dealing with complaints.”
The FCA said that under a redress scheme, firms would be responsible for determining whether customers have lost out due to the firm’s failings. If they have, firms would need to offer appropriate compensation – the regulator would set rules firms must follow and put checks in place to make sure they do.
The FCA explained: “A redress scheme would be simpler for consumers than bringing a complaint. We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive. It would also be more orderly and efficient for firms than a complaint led approach, contributing to a well-functioning market in the future.”
Next steps
The FCA has said it is no longer planning a further announcement in May and will instead “confirm within six weeks of the Supreme Court’s decision if we are proposing a redress scheme and if so, how we will take it forward”.
The FCA added: “Depending on the Supreme Court’s decision, we may also consult separately on changes to our rules.
“Throughout our work, we will continue to consider how to make sure affected consumers are appropriately compensated and the motor finance market continues to work well, with effective competition, for the millions of consumers who rely on it every year.”
Commenting on the FCA update, Darren Richards, Head of Insurance Regulatory, and Risk at leading financial services consultancy and redress specialist Broadstone, said: “The FCA’s update provides a degree of certainty over the possible steps it will take to support consumers in the ongoing motor finance review.
“While firms will still need to wait for the findings of the Supreme Court, an industry-wide redress scheme would avoid an individual case-by-case approach and provide a consistent framework for compensating consumers. It is hoped that the additional consultation required by an industry-wide redress scheme would be offset by a reduction in the time it takes to compensate consumers and ensure all those applicable receive redress.”
Car finance complaints in a nutshell
Some car finance customers may have been charged too much on their loans and the FCA is assessing the extent of the problem to make sure that, if you are owed compensation, you get it in the best way possible.
This could apply to you if:
- you used car finance to buy a motor vehicle, for example a car, van, campervan or motorbike, before 28 January 2021 (this includes hire purchase agreements, such as Personal Contract Purchases)
- your lender and broker had a discretionary commission arrangement
This does not apply if:
- you used car finance to buy a car on or after 28 January 2021
- you used a hire agreement, such as a Personal Contract Hire
