Millions of motorists expected to receive car finance compensation next year, FCA tells MPs

The UK's financial regulator told MPs it expects millions of motorists to be paid compensation next year for the mis-selling of car finance, as it prepares a redress scheme following recent Supreme Court rulings.

Nikhil Rathi, chief executive of the Financial Conduct Authority, told the Treasury Committee that the proposals relate to commission arrangements between lenders and dealers and to cases where buyers were given inaccurate information about finance options. While the Supreme Court limited the breadth of possible claims, the FCA said up to 30 million agreements from 2007 to 2020 could be subject to review.

The watchdog said a finance redress scheme has not yet begun but that it is planning a large public awareness campaign to explain how payouts will work, who will be eligible and how consumers can claim. Rathi said details were still being finalised, including whether claimants will need to opt in or whether they will be included automatically. "It will be pragmatic, proportionate and fair to all sides," he told MPs.

The FCA said claimants were likely to receive less than £950 per deal on average. It identified several categories of customers likely to be eligible, including many of the 14.6 million agreements made under so-called discretionary commission arrangements, where a dealer received commission from the lender based on the interest rate charged to the customer. Other potential claimants include buyers who had an unfair contract because commission paid to the dealer was so high and those who were not given accurate information about obtaining the best finance deal.

Rathi told the committee that not all firms involved had been fully cooperative as the regulator prepared the scheme. Committee chair Dame Meg Hillier pressed him to identify which firms were "playing hardball," but he declined to name them. The FCA did not give a timetable for when reviews of individual contracts would begin, beyond indicating that payments should start next year.

Ministers and consumer groups have drawn comparisons with the large redress programme that followed the mis-selling of payment protection insurance. The PPI campaign ran for more than a decade and featured a high-profile FCA awareness drive that included the robotic head and voice of actor Arnold Schwarzenegger; by the end of the scheme some 34 million consumers had received an average payout of about £1,000. The FCA said fewer people are expected to be eligible under the motor finance mis-selling scheme, but that it is still likely to cover millions of drivers.

Industry groups and lawyers are watching closely for details of the FCA's methodology for identifying affected contracts and calculating redress. The scale of the potential review — spanning more than a decade of agreements — means firms may have to trawl large volumes of legacy data and customer records.

The FCA said it would set out further details in due course and that it will aim to balance a fair outcome for consumers with proportionate burdens on firms. MPs on the Treasury Committee signalled they will continue to scrutinise the scheme as its design becomes clearer and as the regulator engages with lenders, dealers and consumer representatives.