Drivers have been handed a major update on the car finance scandal, which could see millions of drivers receive compensation after falling victim to mis-selling.
The FCA has confirmed that it will be moving forward with a compensation scheme to benefit those impacted by the car finance scandal.
The scandal relates to a years-long practice that saw lenders and dealers charge motorists extra on their finance deals to obtain a higher commission, without informing the driver of these rules.
Following a lengthy consultation, which received more than 1,000 responses, the FCA has outlined how the redress scheme will be delivered for motorists who took out a car finance agreement between April 6, 2007, and November 1, 2024.
While original plans suggested that the total cost of the compensation scheme would be around £8.2billion, firms are now expected to pay out around £7.5billion.
The FCA said it had streamlined its process so consumers are compensated quickly, with millions set to receive money this year, and the rest by the end of 2027.
There has been an estimated uptake of 75 per cent of customers, with redress costing firms £7.5billion, in addition to £1.6billion in non-redress costs, bringing the total cost to £9.1billion, down from £11billion.
The regulator’s final policy states that the final policy will include 12.1 million eligible agreements, with an average redress of £829 per agreement.
READ MORE: Millions of drivers prepare for £700 compensation decision in car finance scandal update
The FCA has unveiled details on the compensation scheme for drivers involved in the car finance scandal
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The average redress of £829 per agreement is significantly more than the £700 initially earmarked for the scheme, although after the launch of the initial investigation, some experts suggested drivers could be owed as much as £1,200.
Customers will only be considered for compensation if they weren’t told details of at least one of the three arrangements between the lender and the broker.
This includes a discretionary commission arrangement, high commission arrangement and contractual ties that gave a lender exclusivity or a right of first refusal.
Firms will be given three months from the end of the implementation period, which is either June 30 or August 31, to tell complainants whether they are owed compensation and how much.
The FCA has outlined how the compensation scheme will work for those impacted by the car finance scandal
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PALenders will only need to contact complainants or those due compensation, with the FCA estimating that this will cut the costs to firms delivering the scheme by around 40 per cent.
The FCA explained that the motor finance market has continued to attract investment, even in the face of hefty costs stemming from the compensation scheme.
Despite these fears, and firms putting aside billions of pounds in preparation for the redress scheme, the regulator stated that there will be a “limited impact” on the new car finance market.
The FCA confirmed this morning that it would be creating a taskforce to crack down on claims management companies (CMC) and law firms from targeting drivers.
The Supreme Court ruled that failure to disclose the commission agreements could be unlawful
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PAAlongside the Solicitors Regulation Authority (SRA), Information Commissioner’s Office (ICO) and Advertising Standards Authority (ASA), the task force will share intelligence to protect customers.
It stated that it would target unsolicited and misleading advertising, meritless claims, multiple representations, and unfair exit fees.
Drivers have consistently been warned against signing up with a CMC or law firm, as they could lose up to 30 per cent of any compensation they could be entitled to.
While some motorists may want to take the case to court to earn more money, the FCA warned that it could end up costing them more than the compensation is worth.