Millions of drivers are set to receive information about the highly anticipated car finance compensation plan tomorrow. The Financial Conduct Authority (FCA) has estimated the potential payout to be between £9 billion and £18 billion, with a consultation and statement expected post stock market closing.
Consumer advocate Martin Lewis from Moneysavingexpert.com believes up to 14 million individuals may qualify for compensation due to undisclosed commission earnings by some motor dealers on car finance deals. The FCA intervened following a Supreme Court ruling that provided clarification on potential compensation eligibility for a larger group.
If the scheme progresses after the consultation, initial payments could begin next year, with most individuals likely to receive under £950 in compensation. FCA’s CEO, Nikhil Rathi, emphasized the aim for a fair and accessible compensation scheme, discouraging the use of claims management companies to avoid significant fee deductions.
Questions have arisen regarding the FCA’s payout estimate, with concerns raised by Adrian Dally from the Financing and Leasing Association about the accuracy of the projected £9 billion to £18 billion range. Details on the calculation and implementation of the scheme are pending further announcements.
Potential claimants are advised to file complaints with their banks or finance firms if they suspect wrongdoing. The compensation scheme’s operational framework, including participant involvement and compensation calculation methods, will be subject to forthcoming consultations.
The FCA anticipates interest payments on compensation at a rate based on the average annual base rate plus 1%. The consultation will also address opt-out versus opt-in participation models and the criteria for compensation calculation, potentially capping payouts at the dealer’s commission.
The final cost of the compensation scheme will be contingent on its design, with estimates ranging from £9 billion to £18 billion. Balancing punitive measures with financial market stability remains a key consideration for the regulator to prevent adverse effects on lending practices and the automotive sector.