The FCA says drivers who used finance to buy a car, van or motorbike between 2007 and 2024 could still be owed compensation over hidden commission arrangements.
The FCA compensation scheme covers agreements taken out between April 6, 2007 and November 1, 2024, including hire purchase deals and Personal Contract Purchase agreements.(Image: Getty Images)
The Financial Conduct Authority (FCA) has urged motorists to continue making car finance complaints despite a legal challenge being launched against its compensation scheme.
The watchdog estimates around 12.1 million finance agreements could qualify for compensation of around £829 after lenders failed to properly disclose commission arrangements linked to loans used to buy cars, vans, campervans and motorbikes.
However, in a new update on the FCA website, the regulator confirmed the scheme is now facing legal action but insisted it would “defend it robustly as lawful and the best way to resolve such a widespread, long-running and complex issue”.
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The regulator also made it clear that consumers should still complain directly to lenders if they believe they may have been affected.
It said: “The best thing you can do, if you have concerns, is to complain to your lender.”
The compensation scheme covers agreements taken out between April 6, 2007 and November 1, 2024, including hire purchase deals and Personal Contract Purchase (PCP) agreements.
The FCA said many lenders failed to properly tell customers about arrangements between brokers and finance providers, including commission payments linked to loans.
Some brokers were able to increase the interest rate charged to customers in return for higher commission payments, while other agreements involved high commission structures or exclusive lender arrangements.
The watchdog estimates around 37 per cent of agreements made during the period could qualify for compensation.
Drivers are being encouraged to submit complaints sooner rather than later because the FCA says claims made before the scheme officially starts could be processed more quickly.
The regulator said: “If you complain before the scheme starts, your case will be assessed, and any compensation paid, sooner.”
People do not need to use a claims management company or solicitor to make a complaint.
Under current plans, compensation assessments for agreements taken out from April 1, 2014 are due to begin on June 30 this year.
For agreements made before April 2014, the scheme is expected to start on August 31.
If consumers do not complain directly, lenders will contact anyone potentially owed compensation within six months of the scheme starting.
However, there are some exceptions to the scheme.
It will not apply to Personal Contract Hire agreements, cases already decided by the Financial Ombudsman Service or courts, or customers who have already accepted compensation.
Richard Pinch, Senior Risk Director at Broadstone, said the legal challenge added “another layer of complexity and uncertainty” but warned lenders were still expected to prepare for compensation claims.
He said: “The FCA is clearly signalling that firms cannot afford to stand still.
“Lenders are being told to continue operational preparations and contingency planning now, regardless of the outcome of the court proceedings.”
He added that if the scheme was ultimately overturned, firms could still face “a potentially significant wave of complaint-led redress activity”.
What is the mis-selling scandal?
Many cars are bought using car finance deals, with around two million sold by this method each year.
These typically involve customers agreeing to pay an initial deposit and then monthly instalments with interest payments. However, many of these historic deals have been considered potentially unfair following investigations.
Most of the car finance deals under scrutiny involve so-called discretionary commission arrangements (DCAs), which were stopped by regulators in 2021.
This refers to arrangements whereby brokers, including car dealers, were able to increase interest rates on car loans so they could get more commission.
Who might be affected?
Anyone who took out a motor finance agreement between April 6, 2007 and November 1, 2024 for the purchase of a car, motorbike, campervan or van.
How will the redress scheme work?
The FCA advises that people submit a complaint to their lender using a template letter on its website.
The final plan has separated the redress process into two schemes, with one relating to loans taken out after April 1 2014, and the other for those prior to this date.
Lenders will then have three months from the date of the FCA’s schemes launching to contact those customers and let them know if their car finance agreement is eligible for compensation.
It means customers with loans dated from April 2014 must be told within three months of June 30 whether they are owed compensation and how much it will be.
Those with loans from before this must be told whether they are owed compensation and how much it will be within three months of August 31 this year.
Lenders will also be expected to contact those customers who have not complained and who may be eligible. People will need to reply to say if they want their case to be assessed.
How much money will people get?
Firms are expected to pay out compensation totalling around £7.5 billion. The FCA said the average compensation payment for each car finance deal will be around £829.
How long could it take to receive a payout?
Customers who have made inquiries about their car loans should be told whether they are eligible and how much they could receive by the end of this year.
Firms also have until the end of 2026 to contact people with affected car loans since April 1 2014 who have not made a complaint.
They will have until the end of February 2027 to complete this for those with older loan agreements.
Consumers must respond within six months of these dates if they wish to join the relevant schemes.
Full details on how to complain to your lender and the redress plan can be found on the FCA website.