Martin Lewis uncovers the recipients of auto loan reimbursement - along with the anticipated amount each is set to receive
In a significant development for UK motorists, the Financial Conduct Authority (FCA) is currently consulting on a potential car finance compensation scheme. The scheme, expected to cost lenders up to £18 billion in total, aims to compensate those who were mis-sold car finance deals [1][2][3].
The scheme's eligibility criteria include personal contract purchase (PCP) or hire purchase (HP) agreements made before January 2021, where discretionary commission arrangements (DCAs) were in place. DCAs are arrangements where brokers and dealers charged higher levels of interest to receive more commission without informing consumers [1][2].
If approved, each eligible car finance deal could lead to payouts of up to approximately £950. However, most payouts are expected to be in the hundreds of pounds rather than thousands unless multiple deals were affected [1][2]. The FCA plans for an automatic compensation scheme, with lenders contacting affected consumers directly, minimizing the need for claims management companies.
Martin Lewis, founder of MoneySavingExpert.com, believes that about 40% of Britons who entered PCP or HP agreements between 2007 and 2021 may be eligible for payouts. Consumers are advised to check with their car finance company if they had a DCAs in place [1][2].
The FCA's consultation on the compensation scheme will launch in October and take six weeks. If the scheme goes ahead, consumers can expect payouts by 2026. Martin Lewis warns against using claims firms, stating that they may not do much for consumers and could take 30% of the payout for no service [1][2].
The potential scheme follows findings that many finance deals were sold in breach of the law or disclosure rules, impacting about 40% of UK motorists who entered such agreements from 2007 to 2021 [1][2]. Shares in companies exposed to potential payouts rose sharply on Monday morning. Lloyds, the UK listed bank most exposed to the motor finance issue, has previously set aside £1.2bn to cover any compensation. Shares in Lloyds rose by more than 7% in response to the FCA's announcement, while shares in Close Brothers, another lender, rose by over 25% [1][2].
However, Stephen Haddrill, director general of the Finance and Leasing Association, has expressed concerns about the feasibility of a fair redress scheme that goes back to 2007 [1][2]. The FCA's statement emphasizes that those affected by the car finance issue should be compensated appropriately [1][2].
In conclusion, the FCA's proposed car finance compensation scheme, if approved, could provide significant payouts to eligible consumers. Consumers are advised to monitor the consultation process and, if necessary, check with their finance providers regarding their eligibility. It is crucial to avoid claims firms that could take large fees unnecessarily.
- The proposed car finance compensation scheme, if approved, could potentially lead to personal-finance improvements for UK motorists who were mis-sold car finance deals, especially those who had discretionary commission arrangements (DCAs) in place.
- The emergence of this proposed compensation scheme may indicate a shift in financial market regulations, prompting warnings regarding claims management companies that might charge high fees for little to no service, potentially affecting personal-finance outcomes.
