Millions of drivers will get an average of £829 payouts in car finance compensation
Millions of motorists will receive compensation averaging £829 for rip-off vehicle finance deals under plans revealed today by City Watchdog.
The Financial Conduct Authority (FCA) said 12.1 million finance deals made between 2007 and 2024 will be subject to payments as it revealed final details of the multi-billion pound scheme.
The amount of cash affected by the FCA’s estimated 14 million vehicle finance deals fell when it was first announced in October, but the average amount is up from £695.
Lenders have been lobbying the FCA to soften proposals for the scheme since it was first announced last year.
But others said the planned payouts to consumers should be larger.
If 75 per cent of those affected make a claim, the total cost of compensation is now expected to be £7.5bn; this is lower than the previous estimate of £8.2bn.
The FCA said ‘eligibility criteria have been tightened’ but average compensation for older deals has been increased. Interest will also be paid on compensation. Consumers have until the end of August 2027 to file a claim.
The watchdog will cap payouts in around a third of cases ‘to ensure that no one is put in a better position than if they were treated fairly’.
Some have argued that payouts to consumers should be larger
FCA chief executive Nikhil Rathi said: ‘We have listened to feedback to ensure the scheme is fair for consumers and proportionate for firms. This will put £7.5bn back into people’s pockets.
‘We need everyone to get behind this now and make sure millions get their money this year. Payments should not be delayed any further, especially as household bills come under greater pressure.
‘Paying compensation promptly also gives lenders the chance to rebuild trust, meaning we can underwrite the past and support a healthy car finance market for the future.’
The scandal involves car dealers being paid kickbacks by lenders to sell loans to customers and, in some cases, harsher payments in exchange for flogging more expensive finance packages.
The FCA boss told MPs on the Treasury select committee last week that the consultation, which was extended after lenders asked for more time, had received more than 1,000 responses.
Rathi said: ‘There is mostly conflicting feedback because this has been an ongoing dispute for some time. We’re more likely to continue with the plan.
‘We will consider all the evidence presented to us on all matters and will then make a decision against our objectives in the tour.’
And Rathi defended the idea of establishing a plan to deal with the scandal to avoid a long saga that would be “very expensive” and “could continue for many years”, failing to provide timely compensation to consumers or certainty to investors.
FCA lays out its plan and tells people not to use compensation companies
The outcome was being closely watched by lenders, who had already set aside billions of dollars to cover their estimated exposure to the compensation plan.
Lloyds Banking Group set aside £1.95bn, Santander took a £478m hit and Barclays said it was at risk of £325m, while smaller lender Close Brothers set aside a £300m provision.
Today’s announcement came after the markets closed, but bank stocks will be in the spotlight when trading resumes tomorrow.
Lenders have criticized the plan, with Lloyds saying it does not believe it “reflects the real harm to the customer”.
And Close Brothers boss Mike Morgan recently told the Mail on Sunday: ‘You knew how much you paid for this car and you bought it. This is how the customer got value.’
But last week a group of MPs claimed FCA’s initial plans ‘risk drivers being short-changed’. They argued the drivers should receive £1,200 in compensation rather than £700.
Gary Greenwood, banking analyst at Shore Capital, said ahead of the announcement that the FCA needed to strike a fine balance.
‘We think there is a significant risk of judicial review that could delay implementation by a further 12-18 months if the FCA proceeds with its original proposals largely unchanged,’ he said.
‘Conversely, if the scheme is watered down too aggressively, there is a risk that claimants will withdraw from the FCA process and instead pursue lenders directly through the courts, often with the support of law firms or claims management companies.
‘Although this route may result in higher individual payouts, up to a third of any compensation may be covered by consultant fees.
‘The FCA therefore faces a delicate balance in designing a scheme that is both legally sound and attractive enough to encourage broad participation.’
