How will redress work and who is eligible?

An estimated 14 million people are due payouts
Millions of people mis-sold car loans are set to find out more details about how any compensation payouts will be made as the Financial Conduct Authority (FCA) finalises its long-awaited scheme on Monday.

In an update earlier in the month, the City watchdog said it had received 1,000 responses to its proposals for a compensation scheme , which has received some backlash from the lending sector since the plans were first revealed.

If the scheme gets the green light, the regulator expects to give lenders three months before they need to start contacting motor finance customers, with up to five months for older car loan agreements due to the “scale and complexity of the scheme and in response to feedback”.

Consumers would then wait up to another three months before being told whether they are owed compensation and how much.

But the regulator is aiming to streamline the process by allowing those due redress to accept immediately without waiting for a final determination.

The regulator will also no longer require lenders to ask those who complain before the scheme starts if they wish to opt out, and will not require them to write to customers by recorded delivery, allowing them to contact them in other ways.

The FCA said: “Even with an implementation period, streamlining the process means millions of people would receive compensation in 2026.”
The FCA has been consulting on plans since it outlined a proposed compensation scheme last October that could see payouts for some 14 million unfair motor finance deals, at an average of about £700 each.

It estimated its redress scheme could cost lenders of about £11 billion once the cost of implementing the scheme and doing the work is taken into account.

Dan Coatsworth, head of markets at AJ Bell, said: “Millions of people hoping for a cash windfall from motor finance mis-selling compensation might find the money lands just in time to deal with a big increase in the cost of living.

“Whereas qualifying motorists might have previously earmarked any compensation for a treat like a holiday or a shopping spree, the sharp rise in energy prices over the past few days might warrant other plans for that money.

He added: “Lenders including Barclays, Lloyds and Close Brothers have already set aside large sums of money to cover any compensation payments, and they will want to put the episode behind them as soon as possible.”
Who will be eligible for compensation?

Motor finance firms and lenders broke the law and FCA rules by not properly informing customers about commission paid by lenders to the car dealers that sold them the loan, the regulator has previously said.

This is because some companies ‘discretionary commission arrangements’ with brokers gave them the power to adjust customers' interest rates on Personal Contract Purchase (PCP) and Hire Purchase agreements.

As a result, many motorists did not have the opportunity to negotiate or find a better deal and therefore may have paid a higher interest rate for their loan.

Because these brokers earned more commission on higher rates, this also created an incentive to maximise the rate given.

An estimated 40 per cent of car finance deals were thought to be affected by the issue.

The FCA is advising those who believe they may have been mis-sold car loan deals with hidden commission to complain now to their finance provider, ahead of the scheme starting.

It stressed: “There is no need to use a claims management company (CMC) or law firm, and those who do may lose over 30% of any compensation.”
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