Car finance ruling set to unlock compensation for millions of drivers

The Financial Conduct Authority will publish plans for a compensation scheme covering about 14 million customers mis-sold car finance, with average payments around £700 and total costs estimated at about £11bn.

The Financial Conduct Authority will publish detailed plans for a compensation scheme late on Monday. The programme is expected to cover about 14 million customers who were mis-sold car loans in deals dating back to 2007. The FCA has estimated total costs at about £11bn, split between roughly £8bn for customer compensation and £3bn for administration. The regulator says the scheme should reduce the need for motorists to pursue court action for payment. Known details: - Expected average payouts are around £700 per eligible customer and the scheme covers finance agreements used for most new car purchases. - The FCA said it banned dealer commission arrangements in 2021 where lenders paid commission based on the interest rate charged and that some other agreements were judged unfair, including high commission arrangements and tied arrangements. - The regulator revised an earlier higher cost estimate; the scheme’s cost was previously cited as up to £18bn before being revised down. - Lenders may challenge the plans in court; banks have 28 days to present their case to a tribunal and that could lead to higher court appeals. - Major banks have set aside billions to cover claims, Close Brothers has cut hundreds of jobs linked to its exposure, and at least one law firm representing many customers has said it may pursue some claims outside the scheme. Summary: The scheme is intended to provide compensation for customers judged to have been mis-sold car finance and to channel many claims away from the courts. The FCA will publish the full plans, and lenders may seek legal review with 28 days to bring cases to a tribunal; further appeals are possible. The regulator has allowed an implementation period of three to five months for lenders to contact customers. Undetermined at this time.