Car finance customers could receive payout as watchdog consults over compensation scheme

OTOR finance customers could receive a payout after the Financial Conduct Authority (FCA) announced it will consult on an industry-wide compensation scheme.

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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.