We drill down into the specifics of the case below
- Sam Walker, Consumer Reporter
THE Financial Conduct Authority (FCA) has issued a major update in the car finance compensation scandal.
In a statement today, the watchdog said it will confirm whether customers could get redress within six weeks of a Supreme Court decision.
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It also outlined possible options on how a redress scheme would look and when customers could expect to receive compensation.
It also added that it plans to make it easy for drivers so they don’t have to use claims management companies.
Should a redress scheme go ahead, those who bought a car, motorbike or van on finance before January 28, 2021 may be owed thousands of pounds.
The watchdog said it could either be an opt-in scheme, where drivers have to sign up for a claim, or an opt-out scheme, which means you’re automatically signed up for a claim.
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The compensation case affects those who were overcharged when they took out a loan to buy a vehicle.
Dealerships were incentivised to push customers towards pricier finance deals through so-called Discretionary Commission Arrangements (DCAs).
A Court of Appeal ruling in October last year found that a broker could not lawfully receive commission from the lender without obtaining the customer’s fully informed consent to the payment.
The Court’s decision has been appealed by car finance firms Close Brothers and Motonovo.
The Supreme Court, a higher court, is now considering this appeal.
The FCA has today reconfirmed it will say with six weeks of that decision whether a consultation on a redress scheme will go ahead.
If it decides one will go ahead, it will set out the timings of that consultation and when redress could be paid.
The FCA estimates this to be in 2026.
It has also now confirmed how that redress scheme might be shaped, including seven “principles”.
These include fairness, certainty, timeliness and transparency.
Alex Neill, Co-founder of consumer rights organisation Consumer Voice said: “This is the first signal from the financial watchdog on how it might handle compensation for the car finance scandal.
“The biggest battleground will be whether people have to ‘opt-in’ and contact lenders directly to claim or be automatically included unless they ‘opt-out’ of any redress scheme.
“The regulator has also fired a clear warning shot on compensation amounts, making it clear that it will decide what consumers are owed.”
What is the Car Finance Discretionary Commission Scandal?
The Car Finance Discretionary Commission Scandal affects those who bought a car, motorbike or van on finance before January 28, 2021.
After this date, the FCA banned lenders from using “Discretionary Commission Arrangements” (DCAs).
DCAs allowed brokers to increase interest rates on car finance loans, which in turn saw their commission bumped up.
It has been classed as an unfair practice because drivers weren’t told about the DCAs and therefore thought any deals were a fixed price they couldn’t negotiate on.
But, anyone who took out a vehicle on finance before January 28, 2021, could have been paying more than they should have.
The FCA estimates around 40% of car deals bought on finance before 2021 could be affected.
MoneySavingExpert’s website has a useful checklist on who might be in line for money back.
It also has a list of firms that are unlikely to have handed out dodgy deals and therefore don’t owe customers money.
The FCA has signalled it intends to make lenders proactively contact affected drivers about any compensation.
However, it might be worth putting in a complaint to the lender who you signed a car finance agreement with just in case.
Check any old paperwork if you can’t remember who your lender was.
Lloyds Banking Group has set aside £700million for potential compensation relating to the scandal.
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Barclays has allocated £90million, while Santander said last year it had earmarked £295 million for potential payouts.
The Royal Bank of Canada has estimated that the industry’s bill for motor finance compensation could stretch to £13billion while Which? estimates it could cost them up to £16billion.
What could the compensation scheme look like?
Lucy Andrews, deputy consumer editor at The Sun, explains what you need to know.
The FCA is mulling over what a redress scheme would look like if the Supreme Court rules that drivers should be compensated.
The watchdog will set out rules for how claims will be assessed and calculated.
There are two main options for a redress scheme: an opt in, or opt out structure.
Under an opt-in scheme, you would have to sign up and confirm you want to be included within a certain time limit.
This could mean that you could miss out on compensation if you don’t sign up.
An opt-out scheme would mean that customers are automatically signed up.
This would be much simpler for affected drivers, but the downside is that your claim could be worth less.
It could mean that you have to wait longer for your money as well.
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