Millions of motorists are at risk of delays in receiving compensation for car finance following a legal challenge. Around 12.1 million unfair motor finance deals are set to receive an average payout of £829 each. Consumer Voice has raised concerns about the calculation method of the Financial Conduct Authority’s compensation scheme, warning that it could result in many consumers being shortchanged.
The compensation scheme is anticipated to lead to approximately £7.5 billion in payouts, which is lower than the initial estimate of £8.2 billion. The total projected costs, including administration, are expected to reach £9.1 billion. Consumer Voice is seeking a review of the scheme through the upper tribunal, aiming to ensure that it accurately reflects the harm suffered by drivers and includes appropriate compensatory interest.
The group argues that the FCA’s approach excludes a large number of consumer complaints from receiving full commission redress, citing the Johnson v FirstRand case as a benchmark. Consumer Voice co-founder, Alex Neill, emphasized the need for a fair and lawful compensation scheme that does not leave drivers under-compensated. Consumer Voice asserts that lenders who engaged in mis-selling car finance should be held accountable, urging the FCA to rectify the scheme’s shortcomings.
While Consumer Voice claims there is no reason to delay payouts, the FCA defends its scheme as the quickest and fairest method to compensate consumers. However, critics like James Daley from Fairer Finance argue that challenging the FCA’s redress scheme could prolong the process for millions of individuals.
The compensation scheme applies to car finance agreements made between April 6, 2007, and November 1, 2024, involving commission payments from lenders to brokers. Drivers may have been mis-sold if their agreements had certain features like discretionary commission arrangements or undisclosed contractual ties. The FCA has indicated that the average refund per agreement could be around £700, depending on individual circumstances.
Notably, the FCA’s decision to tighten eligibility criteria means that fewer drivers will qualify for redress, but those who do will receive higher payouts. This adjustment aims to ensure that loans with low commissions or zero interest rates are not included in the scheme.