Motor finance customers could receive payout as FCA will consult on scheme

North Wales Chronicle

a day ago

Many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans, the FCA said.
It comes after Friday's ruling by the Supreme Court on cases in which the FCA had intervened.
While some motor finance customers will not get compensation because in many cases commission payments were legal, the court ruled that in certain circumstances the failure to properly disclose commission arrangements could be unfair and therefore unlawful, the FCA added.
The FCA estimates that most individuals will probably receive less than £950 in compensation.
The final total cost of any compensation scheme is estimated to be between £9 billion and £18 billion, the FCA added.
The consultation will be launched by early October. If the compensation scheme goes ahead, the first payments should be made in 2026.
On Friday, the UK's highest court ruled that car dealers did not have a relationship with their customers that would require them to act 'altruistically' in the customers' interest.
The decision comes after two lenders, FirstRand Bank and Close Brothers, challenged a Court of Appeal ruling which found 'secret' commission payments, paid by buyers to dealers as part of finance arrangements made before 2021, without a motorists' fully informed consent, were unlawful.
The ruling in October last year found that three motorists, who bought their cars before 2021, should receive compensation after they were not told either clearly enough or at all that the car dealers, acting as credit brokers, would receive a commission from the lenders for introducing business to them.
But in a decision on Friday, justices at the UK's highest court overturned the Court of Appeal ruling, though some customers could still receive payouts by bringing claims under the Consumer Credit Act (CCA).
Lawyers for the lenders told the Supreme Court at a three-day hearing in April that the decision was an 'egregious error', while the Financial Conduct Authority intervened in the case and claimed the ruling 'goes too far'.
However, the judges upheld a claim brought by one driver under the CCA that his relationship with the finance company had been 'unfair', awarding him the commission amount of £1,650.95 plus interest.
Nikhil Rathi, chief executive of the FCA, said: 'It is clear that some firms have broken the law and our rules. It's fair for their customers to be compensated.
'We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.
'Our aim is a compensation scheme that's fair and easy to participate in, so there's no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.
'It will take time to establish a scheme but we hope to start getting people any money they are owed next year.'
People who have already complained do not need to do anything, the FCA said. Consumers who are concerned that they were not told about commission and think they may have paid too much to their motor finance lender should complain now.
Consumers do not need to use a claims management company or law firm and doing so could cost them around 30% of any compensation paid, it added.
In a post on X, consumer champion Martin Lewis wrote 'there's no harm in putting a DIY complaint now to see if you had a Discretionary Commission Arrangement'.
The FCA will propose rules on how lenders should 'consistently, efficiently and fairly' decide whether someone is owed compensation and how much, it said. It will monitor if firms are following the rules and act if they are not.
Sam Ward, chief investigator and director at Sentinel Legal, called for the FCA to engage with law firms.
He said: 'The FCA has taken long enough to pick a side and now is not the time to rush anything.
'They've known about this scandal since 2017. They banned discretionary commissions in 2021. The Court of Appeal ruled. The Supreme Court ruled. And now, finally, the FCA is considering redress. But after years of delay, rushing through a flawed scheme would be a disaster for consumers.
'For too long, claimant-focused firms like Sentinel Legal have raised the alarm. We've provided overwhelming evidence of lender misconduct, of deliberate overcharging, of systemic misselling. And that's largely fallen on deaf ears.
'The FCA must now engage with the firms who've been in the trenches, firms who've taken banks to court and won on behalf of consumers. To issue a consultation without first consulting those who exposed this injustice would be fundamentally unfair.
'We cannot have a redress scheme that's self-administered by the same banks who caused the problem in the first place. There must be proper checks and balances. Someone has to hold lenders accountable. That role has, until now, been filled only by law firms and that has to change.
'So our message to the FCA is simple: don't rush. Do what's right. Engage fully with the evidence, with the firms who know the landscape, and with the people who've been fighting for justice since the start. That's how you deliver a redress scheme that is fair, credible and aligned with the reality of what consumers have been through.'