Millions of motorists are poised to receive payouts without having to file a claim, under plans being drawn up by the Financial Conduct Authority (FCA) to address the car finance mis-selling scandal.
The watchdog aims to introduce an industry-wide redress scheme obliging banks to identify and compensate affected customers directly, cutting out claims management companies in the process.
Under current rules, consumers must actively bring forward their own complaints to recoup losses. However, the FCA wants to overhaul this approach, placing the burden on lenders to pinpoint drivers who were sold inappropriate car loans. The initiative follows a year-long investigation into hidden commission arrangements, in which banks allegedly paid car dealers bonuses based on the interest rate they charged borrowers.
While the Supreme Court is expected to rule next month on whether car finance agreements were generally mis-sold, the FCA’s proposed scheme focuses on loans tied to so-called “discretionary commission” arrangements. These deals often incentivised dealerships to push higher interest rates, exposing borrowers to potentially excessive costs.
Several major lenders have already earmarked substantial reserves to handle any fallout. Lloyds and Close Brothers, for instance, have set aside billions and hundreds of millions of pounds respectively to meet potential redress liabilities.
The industry-wide compensation plan is set to be finalised later this year, having been delayed from an initial May timeframe. If implemented, it will be welcomed by consumer advocates who hope that automatic payouts will ensure faster restitution for those who suffered financially under mis-sold car loans.
Molly Preleski, of PA Consulting, said the scheme “should help to ensure that where consumers have lost out, redress won’t be dependent on them taking action to complain,” while also reducing speculative claims made by customers unaffected by these issues.
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Car finance mis-selling: millions set to receive automatic compensation