If drivers who used motor finance to buy their cars are found to have lost out, because of unlawful lending arrangements, they could be in line for automatic compensation.
The Financial Conduct Authority says it wants to consult on an industry-wide redress scheme, which would compensate car buyers if firms are found at fault.
The regulator is reviewing the past use of motor finance discretionary commission arrangements, and wants to establish whether firms failed to comply with requirements and if consumers lost out.
Between 2007 and 2021, some car dealers received undisclosed commissions from lenders when customers accepted higher interest rates on car loans.
In October 2024, the Court of Appeal ruled that such undisclosed commissions were unlawful, with the Supreme Court scheduled to hear an appeal in 2025.
If the Supreme Court upholds the previous ruling, the FCA will launch a scheme which will require banks to proactively identify and compensate affected customers.
It means individuals won’t need to raise a complaint for compensation, they will be paid out an amount dictated by the FCA.
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Major banks have already set aside substantial funds in anticipation of potential compensation payouts. Some experts have raised the possibility that potentially millions of motorists could be eligible for a payout.
Money Expert Martin Lewis says if Supreme court agrees with Court of Appeal, it could lead to an outcome that would be huge, suggesting it could run into tens of billions of pounds being paid in compensation.
The FCA said on Tuesday: “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.“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. We would set rules firms must follow and put checks in place to make sure they do.”
A redress scheme would be simpler for consumers than bringing a complaint, the regulator said.It added: “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.”The regulator said it would confirm within six weeks of the Supreme Court’s decision if it is proposing a redress scheme and if so how it will take the scheme forward.It added: “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.”
The Financial Ombudsman Service recently said that hire purchase related to motor vehicles was the area that generated the most complaints between October and December 2024. It said case numbers had risen due to complaints about motor finance commission arrangements.Jenny Ross, editor of Which? Money, said: “While much still rests on the Supreme Court decision, a redress scheme would remove the need for consumers to make a direct complaint to providers.“This could greatly simplify the process and reduce the need for claims management firms to be involved, increasing the chances of motorists getting 100% of any payout that may be awarded.”
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