After nearly two years of discussions, the motor finance industry is finally approaching the point where car finance customers will receive compensation for unfair treatment from lenders over the past 17 years. An estimated £8 billion is expected to be repaid to customers, which is promising news.
The Financial Conduct Authority (FCA) has published its long-awaited plans for how this compensation scheme should operate, and these plans are now open for consultation. This allows the industry to review the details and raise any objections. If everything goes smoothly, lenders could start making compensation payments as early as 2026.
With around £8 billion likely to be distributed among up to 14 million unfair contracts, this marks a significant step by the government’s financial regulator to hold underperforming lenders accountable.
While the estimated compensation sum is lower than the £40 billion+ figures discussed in July following the landmark Supreme Court ruling, this scheme still sends a strong message that banks and finance companies will not be allowed to exploit their customers. The FCA estimates that up to 44% of all car finance agreements from 2007 to 2024 may have been unfair to customers. This is a staggering statistic and reflects poorly on the car finance sector.
The UK car finance sector is a £40 billion yearly industry that supports the entire automotive market. Without car finance, the automotive sector would find it hard to function. Therefore, it is vital that lenders are held to the highest standards rather than just the minimum, as the whole industry depends on it.
The FCA’s plans assign the responsibility directly to lenders to contact any eligible customers and invite them to submit a claim. There are clear guidelines on how compensation payments should be calculated, ensuring that customers won’t need to pursue separate legal actions or join class actions. The official scheme is designed to be simple, free, and fair. Individual claims and class actions would likely be slower, more expensive, and less predictable.
However, concerns still remain that need resolving. The FCA intends to pursue contracts from as far back as 2007, nearly 18 years ago, but there may be cases where adequate documentation is no longer accessible to ensure accurate calculations.
We should also consider why the FCA has been slow to hold lenders accountable for these unfair agreements. If nearly half of all car finance contracts over a 17-year period are now deemed unfair by the regulator, it raises serious questions not just about the banks, but also about the government regulator that oversaw these agreements. Why did the FCA not take stronger action years ago instead of allowing this scandal to develop to such a considerable extent?
Ultimately, this scheme has the potential to resolve a long-standing and harmful problem in the car finance industry. However, the real scandal is that these unfair agreements were allowed to continue for so long in the first place.
- You can also visit The Car Expert website for more on this subject, here: https://www.thecarexpert.co.uk/
