The Financial Conduct Authority (FCA) is on the brink of a landmark decision that could see billions of pounds returned to consumers affected by mis-sold car finance deals. A supreme court hearing scheduled from April 1 to 3 will pave the way for the FCA to announce its stance on a compensation scheme within six weeks. This development follows an extensive investigation into discretionary commission arrangements (DCAs) on car loans issued between 2007 and 2021, potentially implicating major lenders such as Santander UK, Close Brothers, Barclays, and Lloyds.
The car finance scandal emerged after a court of appeal ruling last October vastly expanded the scope of the issue, significantly increasing compensation estimates. Analysts now project that the scandal could cost lenders collectively up to £44 billion. The FCA has taken a proactive stance, indicating that lenders might be compelled to inform customers about the mis-selling and offer compensation without the need for claims management companies.
“It’s likely we will consult on an industry-wide redress scheme,” – The FCA
Under the proposed scheme, typical payouts for customers who have been overcharged could average around £1,140. The regulator has previously noted that for a standard £10,000, four-year car finance deal using a DCA, customers might have been overcharged by approximately £1,100 in interest alone. This has heightened the urgency for affected lenders to address potential liabilities swiftly.
The FCA has expressed optimism that fewer consumers will need to rely on claims management companies, ensuring they retain the entirety of any compensation they receive.
“We would expect fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive,” – The FCA
Among the lenders impacted by this scandal are Close Brothers and FirstRand, both of which are seeking to overturn the court ruling in the upcoming supreme court session. The FCA has been granted permission to intervene in this pivotal case and has already submitted its confidential submission to the court.
If the FCA's proposed redress scheme proceeds, lenders will be required to proactively reach out to all borrowers who meet the mis-selling criteria and offer them compensation. This approach could significantly broaden the scope of individuals eligible for payouts and eliminate the need for consumers to engage with claims firms.
“Therefore, people won’t need to complain – they will be paid out an amount dictated by the FCA to firms based on their situation. This likely stretches the net of who will be paid far wider (and means there’s no need to use claims firms),” – Martin Lewis