Millions of drivers who were subjected to unfair car finance deals may be entitled to compensation in the upcoming year, according to the latest update from the head of the Financial Conduct Authority (FCA).
Nikhil Rathi, CEO of FCA, revealed that around 30 million car finance agreements were executed between 2007 and 2020. However, not all of these agreements will qualify for compensation.
The compensation scheme is particularly focused on examining discretionary commission arrangements (DCAs), where brokers and car dealers inflated interest rates on car loans to earn higher commissions without proper disclosure to customers.
FCA indicated that some motor finance companies failed to adequately inform customers about these commissions, leading to a consultation on a redress scheme for affected drivers.
Mr. Rathi informed a parliamentary committee that the consultation is set to commence early next month, with hopes that compensation payouts, where applicable, could begin in the following year.
FCA advises drivers against using legal representatives or claims management firms to file complaints, urging them to directly contact the lender who provided the car finance for a free resolution process.
The financial watchdog estimates the total cost of the compensation scheme to range between £9 billion and £18 billion, involving at least 38 motor finance firms in the UK.
This development comes after a Supreme Court ruling in August, which held lenders not accountable for undisclosed commission payments on car finance agreements, a separate issue from the ongoing DCA investigations by FCA.