City watchdogs have outlined plans for a massive compensation and redress scheme that would see billions of pounds paid to millions of people who lost out on rip-off car finance.
The Financial Conduct Authority (FCA) has stated that a formal redress scheme is increasingly likely if the courts confirm that consumers have been wrongfully overcharged.
The watchdog says that it will determine its next steps within six weeks of an upcoming Supreme Court hearing, which could have significant financial implications for car finance giants, including high street banks.
The FCA has been investigating the past use of motor finance discretionary commission arrangements (DCAs). This surrounds the fact people buying vehicles before January 2021 were kept in the dark about secret commissions which pushed up the cost of loan repayments.
The number of car buyers who could be entitled to compensation of around £1,100 could be more than 10 million. Some estimates suggest the total bill could be more than £16 billion and, potentially, as high as £30 billion.
Next month, the Supreme Court will hear an appeal against that ruling (Image: Getty)
A pivotal Court of Appeal judgment in October 2024 ruled in favour of three consumers in cases against finance firms Close Brothers, FirstRand Bank, and Motonovo. The decision raised the possibility of widespread liability for motor finance firms where commissions were not properly disclosed to customers.
Next month, the Supreme Court will hear an appeal against that ruling. The FCA has been granted permission to intervene and has already submitted its arguments.
The FCA stated: “We want to provide as much certainty as possible to firms, consumers, and stakeholders.
“If, taking into account the Supreme Court’s decision, we conclude that motor finance customers have lost out due to widespread failings, then it is likely we will consult on an industry-wide redress scheme.”
If implemented, finance firms would be responsible for determining whether customers suffered financial losses due to non-compliant practices. They would then be required to provide appropriate compensation under FCA rules, with the watchdog overseeing compliance to ensure fairness.
The watchdog said: “A redress scheme would be simpler for consumers than pursuing complaints individually.
“It would reduce reliance on claims management companies, allowing consumers to retain all of their compensation, and would also create a more orderly and efficient resolution process for firms.”
The FCA added: “Throughout this process, we will continue working to ensure that affected consumers receive fair compensation and that the motor finance market operates efficiently with strong competition for the millions of people who rely on it each year.”
The Supreme Court hearing, set for April 1-3, will be crucial in determining whether car finance customers could receive substantial payouts due to historic mis-selling practices.